GameStop, a US video game retailer, on Monday agreed to buy rival Electronics Boutique for $1.4bn in an attempt to expand internationally and counter competition from discounters and video rental chains.
The deal marks the latest chapter in the consolidation of the US retailing sector. GameStop and Electronics Boutique are uniting in the face of competition from discount retailers such as Wal-Mart, large electronics retailers such as Best Buy, and video rental chains such as Blockbuster that have recently started offering video games to customers.
The deal will also give GameStop ownership of Electronics Boutique's international locations, allowing it to fulfil a long-standing ambition to grow overseas.
“GameStop had repeatedly said they want to be in Europe and this gives them that access,” said Michael Pachter, analyst at Wedbush Morgan Securities.
The combined group will have annual revenues of about $3.8bn, with more than 3,200 stores in the US and close to 600 stores in the rest of the world. Together they will have a combined market share estimated at 21-25 per cent of the $12bn US computer games market, challenging Wal-Mart, with about 20 per cent, and Target and Best Buy with about 15 per cent each.
GameStop is paying Electronics Boutique shareholders a mix of cash and stock that values the company at $55.18 per share a 34 per cent premium to its closing share price on Friday.
GameStop shares rose 9.7 per cent to $23.71 by the close, as Wall Street investors appeared to welcome the transaction. Shares in Electronics Boutique rose 35 per cent to $55.58 just above the offer price.
As the deal was announced, Game Group, a UK electronic games retailer previously associated with Electronics Boutique, announced it was no longer in discussions over a possible sale, leading to speculation that GameStop had been the potential buyer.
A mutual non-competition agreement between Electronics Boutique and Game Group expires next February, covering Game Group's operations in the UK, and Electronics Boutique's stores in Germany and Italy. In the US, Mr Pachter said regulators might seek sales of some of the combined group's in-mall locations, which account for about 90 per cent of the market.
Citigroup advised Game-Stop. Merrill Lynchand Keane Advisers advised Electronics Boutique. PeterJ Solomon wrote a fairness opinion for Electronics Boutique.