Guitar Center Agrees to Buy Musician’s Friend

Guitar Center Inc., the world’s largest musical instrument retailer, said Thursday it will acquire and merge with catalog and Internet retailer Musician’s Friend Inc. in a $33.5-million stock deal.

Agoura Hills-based Guitar Center said the reasons it was interested in privately held Musician’s Friend are the firm’s direct-marketing experience and a belief that the Internet will become a strong sales channel for musical instruments.

The new company, which would keep the Guitar Center name, will have 61 retail stores, a combined mailing list of 4 million customers and two distribution centers, the companies said.

The combined company will continue to be headquartered in Agoura Hills.

The majority of the nine retail stores owned by Musician’s Friend will be converted to the Guitar Center format while the mail-order and Internet business will continue to operate as Musician’s Friend, which is based in Medford, Ore.

Guitar Center operates 52 stores in the U.S. and has plans to open nine new stores in 1999. The company went public two years ago.

Guitar Center stock was trading close to $30 earlier this year, but the shares fell after a disappointing fourth-quarter earnings report. On Thursday, its stock closed at $16.75, up 25 cents, in Nasdaq trading. The deal was announced after the close of U.S. financial markets.

Guitar Center will issue 2 million new shares to Musician’s Friend shareholders and assume about $17 million in debt. The value is based on Guitar Center’s closing price of $16.75.

Larry Thomas, Guitar Center’s chairman and chief executive, will be chairman and co-chief executive of the new company. Marty Albertson, chief operating officer of Guitar Center, will become president and co-chief executive of the new company and will head retail store operations. Robert Eastman, chairman and CEO of Musician’s Friend, will remain as CEO of the mail-order and Internet businesses.

The purchase will cut Guitar Center’s 1999 earnings and add to earnings by 2001, the companies said. Guitar Center will take an unspecified charge in the quarter in which the purchase is completed to pay for acquisition expenses.

Musician’s Friend had 1998 revenue of $97.0 million. Guitar Center earned $27.4 million in 1998 on revenue of $391.7 million.

The merger, which is subject to customary conditions, including regulatory clearances, is expected to close before the end of June.

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Blue Spell

Shares of No. 1 musical instrument retailer Guitar Center hit a sour note earlier this year after trading close to $30 in January. Weekly closes and latest:

Wednesday: $16.75

Source: Bridge