CompUSA, Seeing the Next Wave, Will Buy Good Guys

Mexican billionaire Carlos Slim took one step closer to your living room Monday.

Slim’s CompUSA Inc. agreed to acquire Good Guys Inc. for $55.3 million in cash, making good on his desire to expand into the highly competitive consumer electronics industry.

Although the size of the deal is relatively small, analysts and industry experts say it portends the next wave in retailing high-tech gadgets and services: combining personal computers with home entertainment systems that control everything from a house’s lighting and heating to its music and video capabilities.

If approved by shareholders and regulators, Alameda, Calif.-based Good Guys and its 71 stores in the Western U.S. would become a subsidiary of Dallas-based CompUSA, which is controlled by the Slim family, one of Latin America’s richest clans with significant holdings in retailing and telecommunications.

CompUSA has agreed to buy Good Guys for $2.05 a share, a 37% premium over Friday’s closing price. It also has invested $5 million in the electronics chain in the form of two-year convertible notes.

“We’re realists,” said Kenneth Weller, Good Guys chairman and chief executive, in an interview after the markets closed Monday. “The short-term reality is that we have an unforgiving and soft economy, particularly in Northern California. And the long-term reality is that if you’re going to compete in a world with Dell, Wal-Mart, Costco, Target and Best Buy, you need resources.”

The deal, say industry analysts, has the potential to bolster both retail chains. Good Guys sells consumer electronics such as home audio and video equipment. CompUSA, with 226 stores nationwide, is a purveyor of computer products and services.

“We believe that the long-term futures of consumer electronics and information technology are linked,” said Larry Mondry, president and chief operating officer of CompUSA. “The Good Guys acquisition is really a part of that belief.”

By entering the CompUSA fold, Good Guys should enjoy access to capital and a reprieve from the crushing economics of competing with discount stores such as Costco Wholesale Corp. and Wal-Mart Stores Inc. for shoppers’ electronics needs, said Stephen F. Smith, editor in chief of the trade magazine TWICE, This Week In Consumer Electronics.

CompUSA, for its part, could boost its PC sales by also offering computer-controlled home entertainment offerings.

Still, Smith added, success is far from certain.

“I think it’s a mixed bag, since this is not a robust economic revival,” Smith said. “The demand is there for high-definition TV and MP3 players and digital camcorders and the like, but are people really going to be willing to take their cash or their credit cards out of their pockets to make a purchase? I don’t have a prediction for that.”

Good Guys seemed to be on the verge of a turnaround at the end of fiscal 2003, posting its first profit in six years: $1 million in earnings on sales of $750 million.

But this year, the company has slipped back into negative territory. On Monday, Good Guys posted a $6.9-million loss, or 25 cents a share, for its fiscal second quarter ended Aug. 31, compared with a loss of $1.8 million, or 7 cents, a year earlier. Sales fell 14% to $152.2 million.

The company’s stock, which in 1998 sold for $14 a share, closed up 47 cents Monday at $1.97 on Nasdaq.

The Good Guys deal is part of a broader effort by Slim to expand into consumer electronics.

Earlier this year, he offered $1.5 billion for control of the larger Richmond, Va.-based Circuit City Stores Inc. even though its profit dropped 52% in fiscal 2003. The retailer rejected the offer. Slim owns 9% of Circuit City.