CompUSA Agrees to Buy Computer City From Tandy

CompUSA Inc. said Monday that it has agreed to buy Computer City from Tandy Corp. for $275 million, a deal that would combine the nation’s two biggest personal computer retailers.

CompUSA, the largest PC chain, with 160 stores, would pay $125 million in cash and the remainder as a note, though the amount of cash could change before the transaction closes. The 100-store Computer City chain had sales of $1.9 billion last year. CompUSA had sales of $4.6 billion.

The move would help Dallas-based CompUSA expand even as falling computer prices and slack demand hurt its profit. In April, the once-high-flying chain scaled back its store expansion plans by as much as 50%, saying fiscal third-quarter earnings were down 22% and that business would be soft for at least another quarter.

CompUSA shares rose $2.25 to close at $18.50 on the New York Stock Exchange. The stock has lost about half its value since early March.

The sale ends Tandy’s failed attempt to expand beyond its RadioShack chain. The Fort Worth-based company said it will take a charge of $38 million to $43 million in the quarter ending in June for the sale. In December 1996, Tandy said it would take a $170-million charge to close its Incredible Universe chain of electronics stores and some Computer City outlets. It also shed its McDuff Electronics chain.

Tandy plans to focus on RadioShack, the largest U.S. chain of electronic stores. Its shares rose $4.06 to close at $46.50, also on the NYSE.

CompUSA expects the deal, expected to close in 90 days, to boost earnings and cash flow. It said it expects to close some stores.

Meantime, CompUSA is spending more to build up new initiatives such as made-to-order computers and direct marketing. It is also trying to expand its higher-profit service business.

The purchase is subject to regulatory approval.