Investor Group to Take Over Micro Warehouse

A former IBM chief financial officer will head the company.
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Updated from 10:03 a.m. EST

A group of investors, including Hollywood executive

Michael Ovitz

,

Northwest Airlines

(NWAC)

chairman Gary Wilson and a former top

IBM

(IBM) - Get Report

executive, said Tuesday that it would acquire

Micro Warehouse

(MWHS)

, a catalog and online retailer of computer products, for about $725 million.

Under the terms of the agreement, Micro Warehouse shareholders will receive $19 in cash for each Micro Warehouse share they own. That price represents a 44% premium to the company's average stock price over the past 30 days and a 24.6% premium over Micro Warehouse's closing price of 15 1/4 Monday, but it is well below the company's 52-week high of 47 reached in January.

Shares of Micro Warehouse were up 2 7/8, or 19%, to 18 1/8 in early trading after a delayed opening. (Micro Warehouse settled up 2 3/4, or 18%, to 18 1/16.)

Wilson, Jerome York, a former IBM chief financial officer, and the investment firm

Freeman Spogli

are leading the group of investors.

"I think this was a value play," said Neal Johnson, an analyst with Robinson-Humphrey. "It looks like they got a good price."

Johnson, who rates Micro Warehouse an outperform and has advised the company on a previous transaction, said the company, which recently restructured some of its operations, also offered investors an impressive direct marketing list containing some 2 million names, a growing Internet business and a good reputation.

"It's got an established name in its market," said Johnson.

Micro Warehouse, which caters to small- and medium-sized business customers, has annual revenues of $2.2 billion.

Upon completion of the cash tender offer for all of Micro Warehouse's shares, York will replace Peter Godfrey, Micro Warehouse's co-founder, as chairman and chief executive officer. The tender offer will be commenced within five business days.

"I am looking forward to the opportunity to lead Micro Warehouse at this critical juncture in its development," York said in a statement.

"Although the company faces significant challenges, I am very impressed with Micro Warehouse's strong operating management, talented workforce and good customer relationships," he added.

Johnson said Micro Warehouse was focusing on trying to build its sales force in order boost revenue."A lot of selling is not necessarily over the phone but face to face," said Johnson, adding that a beefed-up sales force could also offer customer support for catalogue- or web-based purchases.

Credit Suisse First Boston

and

CIBC World Markets

have committed to fund $320 million in senior debt financing at the closing of the deal.

Credit Suisse First Boston will act as lead arranger, book manager and administrative agent for the credit facilities, and CIBC will act as syndication agent.