Best Buy Expands Empire with Musicland, Magnolia Buyouts

The economy may be slowing down in some parts of the country, but not, apparently, in Minneapolis, where national electronics retailer Best Buy Co., Inc. announced December 7 its acquisition of both Musicland Stores Corporation (also of Minneapolis) and Seattle-based Magnolia Hi-Fi, Inc. The buyouts will give Best Buy increased exposure in rural malls and in the Pacific Northwest. The company also announced a plan to open several stores in Canada over the next three years, beginning with eight locations for which leases have already been signed.

Best Buy operates more than 400 stores in 41 states, selling computers, home entertainment electronics, software, music, and movies. Forty-five-year–old Musicland Corporation's 1300 music-and-video stores will soon carry many of the products now featured at Best Buy locations. The Musicland deal, which cost Best Buy a reported $685 million (including assumption of $260 million in debt), is expected to close early in the first quarter of 2001. Magnolia Hi-Fi's 13 high-end audio-and-video stores will cost the expanding retailer $87 million, in a deal expected to close in mid-December.

"Both acquired companies will continue to operate autonomously as wholly owned subsidiaries," stated a Best Buy press release. Key executives from both Musicland and Magnolia will join the merged organization as directors under the leadership of Richard M. Schulze, Best Buy's founder, chairman & CEO. Best Buy senior vice president Kevin Freeland will be promoted to president of Musicland Stores Corporation. Freeland was "instrumental in developing this acquisition strategy," Schulze said. Musicland reported revenues of $1.89 billion and earnings of $58.4 million for its year ended December 31, 1999, according to the merger announcement. Founded in 1954, privately-held Magnolia Hi-Fi reported revenues of nearly $100 million for 1999.

"This acquisition is a good strategic fit," Musicland CEO Jack Eugster said, " . . . while providing an exciting opportunity to transform our stores. Retention of talent is a priority within both organizations and creates new possibilities for employee development."

Schulze was equally enthusiastic. "The acquisitions allow us to deliver digital entertainment technologies to consumer segments not currently served by Best Buy's store format, particularly in rural areas," Schulze said, speculating on the advantage to be gained by "Musicland's leading mall position, combined with our opportunity to transform their product offerings." Schulze explained that "Best Buy's vision is to be at the intersection of technology and life. To realize this vision, we must come to market using a variety of branding concepts and operational formats." Best Buy's management team expects to open 15 Canadian stores in fiscal 2003, with an ultimate goal of as many as 65 stores north of the border.