Dripping red ink, Merisel checks out asset sale, merger possibilities.

EL SEGUNDO - Merisel Inc., a high-flying company that cashed in on the technology boom earlier this decade, has taken a stumble.

Last week, the company reported big losses for both the fourth quarter and full year - $77.3 million for the quarter and almost $84 million for the year. And it said it is "actively" pursuing a possible asset sale or merger agreement. In addition, Merisel said that, because of the year-end loss, it "is in noncompliance with certain covenants under its senior lending and other agreements."

The results come on the heels of the departure of longtime Chairman and Chief Executive Officer Michael Pickett, who officially resigned but unofficially was forced out, according to sources.

Financial analysts who follow Merisel, a world leader in the distribution of computer hardware and software products, said they were surprised by the size of the loss.

"We weren't expecting positive results but we didn't think the loss would be that big," said Robert Anatasi, an analyst with Robinson-Humphrey Co., a securities firm in Atlanta. The results are "disappointing, to say the least."

For the fourth quarter that ended on Dec. 31, Merisel reported a total net loss, including asset depreciation, of $77.3 million, or $2.59 a share, on revenue of $1.6 billion. A year before, the company had a net loss of $2.5 million, or 8 cents a share, on revenue of $1.4 billion.

Flop into the red

For the year ended Dec. 31, Merisel reported a net loss of nearly $84 million, or $2.82 per share, on revenue of $6 billion. In the prior year, Merisel reported net earnings of $11.6 million, or 38 cents a share, on revenue of $5 billion.

MERISEL INC.
(MSEL/Nasdaq)

Qtr. Dec. 31:       1995        1994

Revenues           $1,600      $1,400
Net loss           ($77.3)     ($2.5)
Average shares
outstanding          29.9       29.7
EPS                  $2.59     ($0.08)

Closing price April 3
$2.50
Up $0.20

     52-week
High          Low

$8.36        $2.25

All figures except EPS and share prices in millions

The recent financial troubles have sent Merisel's stock, traded on the Nasdaq market, plunging. From its 52-week high of $8.36 a share, Merisel's stock last week was trading in the $2.25 a share range.

In a statement, Dwight Steffensen, who was appointed Merisel's new chairman and CEO six weeks ago, said, "While the loss for the fourth quarter is large, it also shows the new management team's commitment to taking a fresh look at all aspects of our business to ensure the company's stability.

"We have had to make hard choices regarding the value of certain assets and have begun taking steps to reduce or eliminate the costs associated with unprofitable areas of our operations," Steffensen said.

The other major management change was the appointment six months ago of Ron Rittenmeyer as president and chief operating officer. That position had been vacant for nine months.

Outlook uncertain

"While Merisel expects these negotiations to be successful, there can be no assurance with respect to their outcome," the company said in a statement.

The company said a business plan for the rest of the year has been developed that will allow Merisel "to operate without the need for additional sources of financing or any asset sales."

Financial analysts said Merisel's problems are linked to its heavy debt load - $650 million - as well as increased competition.

They noted the $95 million purchase of ComputerLand retail stores two years ago has not worked out as planned, and Merisel's European operations have been losing money.

James Brill, Merisel's chief financial officer, said a big chunk of the fourth-quarter and full-year losses were attributable to a writedown on the value of ComputerLand assets. In the statement, the company said almost $40 million of the fourth quarter loss was the result of asset value "adjustments."