GameStop and EB merger to go ahead

US retail giants GameStop and Electronics Boutique are one step closer to a merger today, following the decision of the Federal Trade Commission not to review their planned transaction.

The two companies announced the move back in April, stating that it would take place in the third quarter of 2005. The waiting period during which the FTC had the option to investigate the deal has now expired with no such intervention.

The merger transaction is still subject to the agreement of GameStop and EB shareholders, but reports suggest approval is highly likely.

Wedbush Morgan analyst Michael Pachter expressed suprise at the FTC's decision not to review the merger, noting that "While EB and GME each represent approximately 10 - 15 per cent of the overall market for videogame products in the US, the two companies are dominant in used videogame sales, with effectively the entire market sold in brick and mortar stores.

"We believe that this news is positive for both companies as this appears to be the only obstacle in the proposed merger," WM's report continues, before predicting the effect the transaction will have on share prices.

"Although we think that this deal will be significantly accretive for GameStop, we are still unprepared to factor in more than $0.40/share accretion and synergy for financial year 2006.

"Our current EPS estimate for GameStop on a standalone basis is $1.60 for financial year 06, so adding $0.40/share, we arrive at a pro forma earnings rate of approximately $2.00 per share."

Another report by Banc of America analysts forecasts an accretion of $0.15, predicting slower games industry growth over the next few months. "However, we expect the combined company to produce double-digit comps throughout most of financial year 07, driven by the launch of new consoles," says BofA, putting its pro forma EPS estimate for the period at $1.80.

BofA predicts that the merger will most likely take place in September. As a result of the move, GameStop/EB will own a combined total of just under 3000 stores in the US, Canada, Europe and Puerto Rico.