Merger may have cost Merisel a valuable chunk of the market.

Merger may have cost Merisel a valuable chunk of the market

Billion-dollar computer wholesaler Merisel Inc. may be out of the woods following a costly merger that eroded the company's market share during the third quarter -- possibly to an archrival in Orange County -- company officials said last week.

Merisel Chief Financial Officer James L. Brill said ordering delays and customer disastisfaction, which were anticipated results of its April merger, are mostly ironed out.

Co-Chairman Robert S. Leff last week acknowledged the market-share loss, which he termed temporary. He declined to estimate its size.

The comments provide further explanation for the steady decline of Merisel stock since Nov. 6, when it hit a new 52-week low of $2.625 a share on the company's announcement of a third-quarter loss. Since then, shares have wilted in the current bear market to below $2 -- off 70 percent from this year's high.

Further, the less-than-$50-million market value of Merisel on Wall Street is far below its $78 million tangible book value.

Merisel and Ingram Micro D are titans in their industry. Ranked by gross sales they are among the top five distributors of computer products nationwide.

In April, Merisel was formed out of the merger of El Segundo-based Softsel Computer Products Inc. and Microamerica Inc. of Massachusetts creating a giant distributor with combined annual sales of $1.2 billion, which placed the company in the same league as $1 billion (sales) Ingram Micro D.

By itself, the El Segundo company had posted strong sales growth and a profit each year since 1985. But during this year's third quarter, traditionally slow for computer-goods peddlers, the new Merisel turned in only a 10 percent sales increase to $306 million, well behind Ingram Micro D's 54 percent sales surge, to $367 million. Merisel posted a $1.3 million loss.

In explaining the Sept. 30 loss in a printed statement, Merisel President Michael D. Pickett cited "duplicative expenses associated with the merger" and the summer slowdown, without mentioning lost market share.

"You have to assume that you'll lose some of your customers and some of your vendors," said securities analyst Geoffrey Dann of Smith, Barney in New York.

In the fourth quarter "they're expecting to break even to possibly make up to 5 cents a share," said Dann. "I'm in line with that."

Computer products, like most other industries, are slumping on Wall Street. Among Dow Jones industry groups, office equipment stocks are down 22 percent since the Dow Industrials peaked in mid-July. Technology stocks are off 16 percent.

The looming recession is forcing staff cuts at retailers. For example, giant computer retailer Businessland Inc., one of Merisel's 50,000 retailers, announced in September it would lay off 370 workers, or 10 percent of its work force, to reverse three straight quarters of losses.

Merisel may weather a recession better than other distributors that concentrate on high-ticket PC systems, said Leff. More than 80 percent of Merisel products are disk drives, software and other less expensive supporting equipment.