Merisel Says Bye-Bye To IT Distribution

Merisel said Friday that it plans to sell its software licensing business to D&H Services, a Virginia-based company that is not related to D&H Distributing.

El Segundo, Calif.-based Merisel will not have an ongoing revenue stream after the sale, but the company is pursuing acquisitions, most likely outside the IT space, said Merisel CEO Tim Jenson.

"The hardware and software-related capabilities are going in the sale, so we are not wed to this industry," Jenson said. "Even though I've got 10 years experience [at Merisel], I also [have] 15 years in other industries. Our financial partner, Stonington Partners, has experience in a wide range of industries."

Merisel has almost $45 million in cash, according to its second-quarter earnings statement.

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"The sooner we close something, the better for everybody, but we're not going to close the first thing that comes along for any price someone wants to sell at," he said. "There is a sense of urgency but no sense of rush. Our shareholders are looking to enhance shareholder value. We're trying to look at transactions that work well for everybody."

Merisel's software business was dealt a near-fatal blow earlier this month when McAfee terminated its distribution agreement. McAfee had represented about 90 percent of Merisel's revenue, according to Merisel.

"They wanted us to have more vendors. We would have loved to get more vendors, but we were having trouble getting vendors to see the need for more distribution partners," Jenson said.

McAfee recently added GE Access as a distributor and executives at the company said they wanted to focus on more "value-added" distributors.

Merisel had made great strides in the software business last year, said Pat Walsh, president of Computer Station of Orlando. The Longwood, Fla.-based solution provider sourced the majority of its software licenses through Merisel from August 2003 to November 2003.

"They called me out of the blue and even last year they were at [CMP Media's] XChange. I thought, wow, these guys are coming back. I really was hot on Merisel. They were very good for a while. Then all of a sudden it was not so good. I was not getting the same responsiveness, and the pricing totally turned from them. I went over to Synnex and [Merisel] never even called to see what was up."

Merisel was founded in 1980 as Softsel Computer Products, a software distributor. In April 1990, it merged with MicroAmerica, a hardware distributor, to become Merisel. By the mid-1990s, Merisel had become the third largest broadline distributor behind Ingram Micro and Tech Data with annual revenue of several billion dollars.

But behind the growth, the company lost hundreds of millions of dollars. A majority share was sold to investment firm Stonington Partners in 1997 and Merisel went through a dramatic reorganization that led to the selling of its hardware business, including its successful Sun Microsystems-focused MOCA business to Arrow Electronics and Merisel Canada to Synnex.

Executives at D&H Services could not be reached for comment. The Merisel purchase pricewill be determined on the closing date but is expected to be about $1 million, figuring $11.5 million in assets and $10.5 million in assumed liabilities, according to the company. Merisel also expects restructuring costs in the third quarter between $1 million and $2 million.

Merisel had about 45 employees at the end of March, most of them in the software licensing business. Jenson would not say how many employees Merisel has left or whether jobs would be lost in the sale to D&H Services.

Through its first two fiscal quarters ended June 30, Merisel reported a loss of $133,000, or 2 cents per share, compared with net income of $647,000, or 8 cents per share, for the year-ago period. Revenue for the first six months was $32.6 million, compared with $43.1 million for last year.

Shares of Merisel were trading at $2.63 Monday morning, down 2 cents, or 1 percent per share. In January, shares were trading at a 2004 high of $6.31.