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Gamestop Says Bonjour to France

gamestop buyGamestop is billed as the world’s largest video game retailer but until today, they had no footprint in France, Europe’s second largest market.  For $700 million, including debt, that will now change.

Gamestop announced Wednesday they will buy France’s Micromania retail chain from L Capital,  a private equity firm affiliated with LVMH.

The all cash deal will be funded through a combination of cash on hand (the company had $539.9m in Cash and Equivalents as of August 2nd), a $150m term loan from Bank of America and existing lines of credit.

322 French stores will be added to Gamestop’s roster as a result of the offer.  On completion, the game retailer will have 5,889 retail stores in sixteen countries.  There will be 1,077 retail properties in Europe.

Gamestop expects the deal will close in November and be accretive in the company’s fourth quarter which ends January 31st. 

CEO Daniel DeMatteo said in a statement, “The transaction is a reflection of our belief that the European video game market is growing and will be an important part of GameStop’s worldwide growth.” He expects the deal will  help the company reach Fiscal 2009 EPS growth of 25%.

In August, Gamestop reported second quarter earnings of $57.2m (34cents a share) on sales of $1.8b. That was up impressively from earnings of $21.8m (13 cents a share) on sales of $1.3b from the same period in 2007 but it also came prior to retail sales data from NPD that showed a surprising slowdown in U.S. August sales.

At this point, there remains little visibility as to whether the August hiccup was a one time anomaly, or a symptom of issues in the greater economy. That insight won’t likely come until the next NPD report is released in mid October. If the gaming retail market is slowing down, the International footprint could provide some insulation, but Gamestop sales could see the effects of weaker consumer spending during the peak holiday season. Investors seem to be treating the stock cautiously as a result despite the company’s solid performance over the past year.

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