GUITAR CENTER INC. PICKED UP INSTRUMENT RETAILER HITS $2.1 BILLION PAYDAY, AGREES TO BE ACQUIRED NO FRETS ABOUT BAIN BUYING NATION'S LARGEST SELLER.

Byline: GREGORY J. WILCOX

Staff Writer

WESTLAKE VILLAGE -- Guitar Center Inc., which grew into the nation's biggest musical-instrument retailer after setting up 48 years ago in a small Hollywood store, hit a $2.1b illion payday Tuesday when it agreed to be acquired by a private equity firm.

Affiliates of Bain Capital PartnersLLC will pay $1.9 billion in cash for the Westlake Village-based company and assume $200 million of its debt.

Terms call for Bain to pay $63 a share, which represents a 26percent premium over the closing price of Guitar Center's shares on Monday.

The company's stock closed Tuesday at a 52-week high of $59.98, up $9.92 or 19.82 percent.

"I suppose the management thought the stock was undervalued. It looks like they got a good price for the company," said William R. Armstrong, vice president and senior analyst at C.L. King & Associates office in Albany, N.Y.

The sale is not a surprise since the Guitar Center had earlier hired the investment bank Goldman, Sachs & Co. to conduct an auction to solicit interest in a potential acquisition.

"We believe this transaction delivers outstanding value for our stockholders and is a strong validation of the company's accomplishments over the years, as well as our future growth prospects," Marty Albertson, the company's chairman and chief executive officer, wrote.

The deal is expected to close in the fourth quarter.

The company was founded in 1959 by former car salesman Wayne Mitchell, who bought a small store dealing in appliances and some musical instruments, organs, in Hollywood. He changed the name to The Organ Center in 1961.

In 1964, the Thomas Organ Co. stuck a deal to have his company sell a new line of guitars and amplifiers under the Vox brand name, which achieved iconic status in the exploding rock 'n' roll industry. Mitchell changed the name to the Vox Center. It became the Guitar Center in 1969.

The company currently sells guitars, amplifiers, percussion instruments, keyboards and professional audio and recording equipment.

Today, it operates more than 210 retail outlets, and the Music and Arts Division has 95 stores that specialize in band instruments for sale and rental to schools.

"What AutoZone is to the garage, Guitar Center is to the garage band," the Web site Hoovers.com said.

The company's brands include Fender, Gibson, Yamaha and Roland.

Its nearest competitor is Sam Ash Music, which has 45 stores nationwide.

"The rest of the competition is very fragmented," Armstrong said.

Guitar sales have been falling, though.

After rising 41 percent in 2004, they edged up just 0.2 percent the next year and fell 9.6percent in 2006, according to musictrades.com.

Bain still thinks buying the company is a good play and plans to work with the current management.

"As the leading retailer of musical instruments in the U.S., Guitar Center enjoys great brand recognition among musicians nationwide, a loyal customer base and a track record of significant growth," Jordan Hitch, a managing director at Bain Capital, said in a written statement.

"It looks like they got a good price for the company."

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Photo:

(1 -- 5 -- color) Westlake Village-based Guitar Center Inc. set up 48 years ago in a small Hollywood store. At top is the Guitar Center on Sunset Boulevard in Los Angeles. Inset from left: Company photos show the Hollywood store's Old Drum Room in the 1960s; its grand entrance in the '90s; and its Keyboard Room in the '60s.

Damian Dovarganes/Associated Press File