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B&N ups Funco bid again
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April 26, 2000: 11:44 a.m. ET
Book retailer raises offer for No. 1 U.S. video game retailer to $24.75 a share
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NEW YORK (CNNfn) - Barnes & Noble Inc. raised its buy-out offer for Funco Inc. to $161.5 million Wednesday, upping the stakes yet again in a furious bidding war for the nation's No. 1 video game retailer.
Funco confirmed it expects to receive a binding offer from Barnes & Noble (BKS: Research, Estimates) by the close of business Wednesday offering to buy the Minneapolis-based company $24.75 per share cash.
The revised offer comes less than a week after rival Electronics Boutique matched Barnes & Noble's earlier bid of $21 a share in cash or cash and stock for Funco, a deal valuing the company at approximately $135 million.
Funco (FNCO: Research, Estimates) accepted the Electronics Boutique (ELBO: Research, Estimates) offer last Friday, but said in a written statement Wednesday that it now is back "in discussions with Barnes & Noble" regarding the company's latest offer.
 "We're extremely pleased with the interest being shown," Stanley Bodine, Funco's president, told CNNfn.com "Our objective is to maximize shareholder value, so we will take our time here and see what happens."
Bodine said Funco's board will meet after the binding proposal is received from Barnes & Noble and look to make a decision quickly. Terms of its current merger agreement will allow Electronics Boutique five business days to match the Barnes & Noble offer.
Bodine said the Electronics Boutique deal contains a $3 million breakup fee. An Electronics Boutique spokesman said his company would respond to the offer within the five-day period.
A good fit for either suitor
Analysts said the addition of Funco, which had sales of $197.9 million through the first nine months of its current fiscal year, would significantly enhance either company's position in the increasingly lucrative video game market.
Both Electronics Boutique and Barnes & Noble, through its Babbages Etc. subsidiary, currently sell video games at hundreds of mall locations around the country.
Funco operates predominately out of store locations built into so-called "strip" malls, leaving little competitive overlap, and has staked out a leadership position in the resale of used video games.
"Whoever wins will be able to roll out a used game strategy throughout their entire business immediately," said Robert Evans, an analyst with Craig-Hallum Capital Group Inc.
Further intensifying the pressure to make the acquisition, Evans said, is the absence of any real Funco competitors on a national scale, leaving the loser of this bidding war with few options for rapid expansion.
"The question is: How willing will these companies be to face some potential dilution in the first year in return for some real gains in years two through five?" he said.
 Indeed, investors clearly were expecting a return volley from Electronics Boutique Wednesday, boosting Funco shares 3-1/8 to 24-5/16 in late morning trading.
Evans said Barnes & Noble, the nation's No. 1 book retailer and which purchased Babbages last year after that company emerged from bankruptcy, clearly holds the upper hand in this battle, given its deep pockets and diversified business lines.
But Electronics Boutique, which initially offered $17.50 a share cash for Funco earlier this month, has yet to back down, intrigued with the possibility of forming the world's largest retailer of specialty video and computer games, boasting more than $1 billion a year in sales.
Still, Electronics Boutique spokesman Joseph Firestone reiterated Wednesday that his company is adamant about not carrying the bidding war too far.
"Obviously we have to go through our model again," he said. "But we've told our shareholders all along that we would do nothing to dilute our shareholder value."
The bidding war for Funco was precipitated by a severe drop in the company's stock price earlier this year when it missed fourth-quarter earnings estimates.
Barnes & Noble's shares climbed 9/16 to 18-1/16 late Wednesday morning, while Electronics Boutique shares rose 1/4 to 18-11/16. 
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