Live Deals: Investors Take Retailer Private –

After following the ups and downs of publicly traded Micro Warehouse for more than two years, a high-profile group of investors and Los Angeles buyout firm Freeman Spogli last month agreed to purchase the computer distribution company for $19 per share, or approximately $725 million.

Freeman Spogli will provide approximately $130 million in equity while the investor group will commit approximately $80 million. The investors include Gary Wilson, chairman of Northwest Airlines; Alfred Boyer, founder of Boyer Capital Management and arranger of the deal; Alfred Checchi, former co-chairman of Northwest Airlines; Jerome York, former chief financial officer at IBM; and media entrepreneur Michael Ovitz.

The group of investors, minus Freeman Spogli, has held a 4.9% stake in Micro Warehouse since last year.

Credit Suisse First Boston and CIBC World Markets will arrange a $390 million credit facility to support the transaction. CSFB will act as the lead arranger while CIBC World Markets will be the syndication agent.

Micro Warehouse is a catalog and online retailer and direct marketer of personal computers, computer software, accessories and products to commercial and consumer customers.

Charles Rullman, now a general partner at Freeman Spogli, previously worked at Bankers Trust when the bank helped finance the buyout of Northwest Airlines that put Wilson in control of the company. Rullman said Micro Warehouse has not had the kind of growth that it should being in such hot areas-computer retailing and e-commerce.

He attributes this to a series of difficulties that distracted management, including suits brought against the company after a 1996 decision to restate certain financial statements from the 1992 though 1995 fiscal years. However, Micro Warehouse was cleared of the charges brought against it by the Securities and Exchange Commission last year, Rullman added.

“Situations like Micro Warehouse’s are exacerbated when they happen to public companies and had a negative impact on the company,” he said. “While the problems were going on, the competition moved forward and Micro Warehouse didn’t.”

Taking the company private gives it a new lease on life, Rullman said. It’s not a turnaround deal, but a repositioning of the company, he added.

Playing Catch-Up

Unlike its competitors, namely CDW Computer Centers and Insight Enterprises, Micro Warehouse has been slow to build its “outbound business,” its effort to bring in new clients, and has instead depended on its “inbound business,” waiting for potential customers to receive catalogs and call to order products.

Rullman said his firm and the other investors will help the company be more proactive in developing relationships with potential customers while also helping to expand its Internet activity. Approximately $300 million of the company’s $2.2 billion in revenue last year came from Internet sales.

Should the deal close, York will succeed Micro Warehouse co-founder Peter Godfrey as chairman and chief executive. Also upon the deal’s completion, which is expected late this month, a new seven-member board of directors will be established and will include York, Wilson, Boyer, Checchi and three representatives from Freeman Spogli.

Rullman said Freeman Spogli became interested in joining the investment group partially because of the firm’s previous experience in direct marketing and distribution. Freeman Spogli in November acquired a majority interest in Medical Arts Press, a marketer, manufacturer and distributor of health-care products, for approximately $277 million. The firm sold its 25% stake in apparel cataloger Brylane last year.