CORPORATE FOCUS—Pared-Down Software Firm Banking on Stock Rebound

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Summary


Business:

Software licensing and logistical services


Headquarters:

El Segundo


CEO:

Tim Jenson


Market Cap:

$ 15.2 million Dividend Yield: N/A*


Total Liabilities:

$141.1 million P/E Ratio: N/A


Long-Term Debt:

$23.8 million

* Merisel Inc. does not pay dividends.

When the going got tough, Merisel Inc. decided it was time for a metamorphosis.

The El Segundo-based distributor of computer hardware and software, battered by the declining market for its core products and services, has taken drastic measures to resurrect itself and pull its stock price up from just above a dollar.

Over the past year, the company has restructured some operations, shed others, brought in new management and cut its workforce from nearly 3,000 employees to 110. The moves have been risky and have cost Merisel millions of dollars, but they may allow the company to move toward profitability.

Its shares were trading near $1.75 last week, from $1.01 in late April. That trough came after Merisel’s 1 for 10 reverse stock split in February, which brought shares up from 25 cents to $2.25 (and down again the company closed at $1.75 per share on the first day of trading at the bolstered price).

In another move to shore up its stock, the board this month authorized the use of up to $1 million for the repurchase of and the company announced it may be buying back shares throughout the year.

“When you look at Merisel historically, we really aren’t the same company,” said Tim Jenson, Merisel’s president and chief executive. “We are starting out fresh.”

Today, the focus is on providing software licensing, logistics and e-commerce services.

Merisel reported net income of $26.3 million ($3.24 cents per diluted share) for the first quarter ended March 31, up from a loss of $13.5 million ($1.67) in the like year-earlier quarter. Excluding one-time gains generated by the sale of one of its business units, Merisel would have had a loss of $12.8 million ($1.63) for the most recent quarter.

First-quarter revenues were $164.7 million, vs. $904.6 million in the first quarter of 2000.

In the distribution market, Merisel struggled to compete with giant Ingram Micro Inc. of Santa Ana and Florida’s Tech Data Corp.

“For a long time, we had been butting heads in the market place and, given the eroding market place, we decided to get out,” Jenson said. “The business had been losing money for several quarters, in fact a couple of years, and it was our intent to return the company back to profitability.”

Analysts have not actively followed the company for several months.

The operational changes began last year when the company sold off Merisel Open Computing Alliance, a division that was a master reseller and service provider for Sun Microsystems products, to Arrow Electronics Inc. for $110 million. Merisel received an additional $36.3 million payment on the transaction in March.

The company also began winding down most of its U.S. distribution business, closing warehouses on the East Coast and reducing staff at its El Segundo headquarters and at a facility in North Carolina.

The company earlier this month announced it had reached a deal to sell its Canadian subsidiary to Fremont-based Synnex Information Technologies Inc. for nearly $20 million.

The move came after a $26 million investment in the subsidiary last year with plans to continue distribution in Canada.

The sale provided Merisel with capital to create a subsidiary, known as Optisel, in an effort to pursue e-commerce. Merisel rolled its logistics business into the new venture, which also provides manufacturers and brick-and-mortar retailers with services to help them do business on the Internet.

To form Optisel, Merisel in November bought out the e-service assets of Value America Inc., a company based in Charlottesville, Va.

“We’ve got great reserves, very strong, stable systems, a very strong balance sheet with lots of cash and strong net worth and no debt,” said Jenson.

The company is taking a three-pronged approach to growth that focuses on Optisel, software licensing and strategic acquisitions, Jenson said.

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