Best Buy signs deal to acquire Musicland

Thursday, December 7th 2000, 12:00 am

By: News On 6

MINNEAPOLIS (AP) _ Best Buy Co. will buy Musicland Stores Corp. for about $425 million, giving the consumer electronics retailer entree into more than 1,300 retail outlets including Sam Goody, Suncoast, Media Play and On Cue.

The agreement, announced Thursday, also gives Eden Prairie-based Best Buy access to Musicland's four commercial Web sites.

The deal could result in job losses, Best Buy said.

Richard M. Schulze, Best Buy's chairman and chief executive, said the acquisition will let his company reach new groups of consumers: those in rural areas and malls, and ``early technology adopters'' _ people who like to try out new gadgets and technological innovations.

In the first half of next year, Best Buy will test ``pilot concepts'' for the remade Sam Goody and On Cue stores, introducing personal electronics, gaming, MP3 players and related accessories, Schulze said. The remade stores will be rolled out in 2002.

The Suncoast video and Media Play stores will keep their format, with some product and service additions.

Best Buy will continue its expansion, adding 240 to 250 new Best Buy stores in the next four years to its 413 existing stores. Their format will not change. The company plans to add 750 transformed On Cue stores in the next decade, Schulze said.

Best Buy also announced it will expand into Canada with about 65 stores over three years starting in 2002, and it will pay $87 million to acquire Seattle-based Magnolia Hi-Fi, a privately held chain of 13 high-end audio and video stores.

The Magnolia stores will operate as they do now, with three to four new openings next year in the San Francisco Bay area, and with another seven to 10 stores per year after that, Schulze said.

The Musicland acquisition, expected to close in the next four months, values Musicland's common stock at $12.55 per share. Best Buy would also assume $260 million in debt.

``We feel this is a unique opportunity to grow with a company that not only is a good fit for our business but also shares our Minnesota heritage and passion for retail,'' said Jack W. Eugster, Musicland's chairman and chief executive.

Schulze will lead the combined companies as chairman and chief executive, and Best Buy Senior Vice President Kevin Freeland will become president of Musicland Stores Corp. Eugster will join Best Buy's board of directors.

The deal comes a month after Best Buy warned investors that its third- and fourth-quarter earnings would be well below analysts' expectations.

Best Buy said a slower economy was forcing more discounted prices, and it expected its next quarterly earnings announcement on Tuesday to be about 27 cents a share, far below a consensus analyst estimate of 44 cents.

Musicland stock continued to soar Thursday morning to a 52-week high of $12.31 on the New York Stock Exchange. The stock had traded in the $6 range as recently as last week. Shares of Best Buy were down 22 percent to $22.31 on the NYSE.