19.9% stake in Computer City is sold Spinoff from Tandy is new CEO's goal
July 18, 1997
Fort Worth-based Tandy Corp. agreed to sell up to 40 percent of its Computer City chain to a new management team led by former CompUSA chairman and chief executive officer Nathan Morton.
Mr. Morton, 48, will become chief executive officer and co-chairman of Computer City, the nation's No. 2 computer superstore. His goal: to boost earnings at the flagging chain, which lags industry leader CompUSA by a wide margin, then spin it off into a separate company.
Analysts said the move could be great for Tandy, where Computer City's flat results and management problems have been a drain on strong performance from the 6,800-store Radio Shack chain.
"That will be well-accepted by shareholders," said George F. Sutton, analyst at Rauscher Pierce Refsnes in Dallas.
Mr. Morton and former CompuCom Systems executives Avery More and Robert Boutin agreed to buy 19.9 percent of Computer City for $25 million in cash and notes. The executives also purchased a warrant allowing them to buy 20.1 percent more if the company meets unspecified earnings targets under their leadership. Mr. Morton said there's no clear period set for them to increase their stake or decide whether to spin off the division.
Computer City's 1996 revenue was $2.1 billion, or about one-third of Tandy's total sales. Dallas-based CompUSA had revenue of $4.6 billion in the fiscal year ended last month. Computer City has 94 stores, compared with CompUSA's 130.
Mr. More, 43, CompuCom's former president and chief executive officer, will become vice chairman of Computer City, and Mr. Boutin, 39, CompuCom' s former chief financial officer, will become the chain's chief financial officer.
Tandy chairman and chief executive officer John V. Roach will share the Computer City co-chairman job with Mr. Morton.
"The actions announced should accelerate the turnaround of Computer City," Mr. Roach said, adding that the team's investment" provides excellent incentive to enhance Tandy's shareholder value."
Founded in 1991, Computer City started out strong but has been struggling to improve sales and profits since 1995. Tandy approached CompUSA about buying Computer City, but the talks collapsed in spring 1996.
Since then, the chain has worked with Electronic Data Systems to increase sales to corporations. In December, when Tandy got rid of its money-losing Incredible Universe chain, it also announced the closing of 19 Computer City stores, pulling out of some major markets.
The moves have helped - raising Computer City's net income to about the break-even point, Mr. Sutton of Rauscher Pierce Refsnes said. But many investors, he said, wanted more drastic measures.
The jobs the new management team are taking are new. Having new executives pay attention to Computer City should allow other Tandy executives to spend more time on Radio Shack, "a cash cow," Mr. Sutton said.
Others agreed.
"It's a very creative way for Tandy to attack the problem of improving Computer City and getting a very talented management team in," said Dennis Telzrow, equity analyst at Principal Financial Securities in Dallas. "I think the stock will respond strongly."
Mr. Morton, who built CompUSA from two stores to 66 but left abruptly in 1993, said it's too early to say exactly what changes he will make at Computer City.
With electronic and general merchandise retailers pulling back from the computer market, he said, "I think there's a great opportunity. This is a very large industry, and there's obviously room for more than one player."
Others said the chain would probably concentrate on improving corporate sales, selling more high-margin products such as equipment for the small- and home-office market and building more stores.
Mr. Morton will remain chairman of Communications Expo, a small, privately held telecommunications chain based in Dallas. He is not active in day-to-day management there.
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19.9% Stake in Computer City is Sold
