updated 4/18/2005 9:17:22 AM ET 2005-04-18T13:17:22

Video-game retailer GameStop Corp. has agreed to buy rival Electronics Boutique Holdings Corp. for about $1.4 billion in cash and stock, creating a chain of about 3,800 stores worldwide.

The sale price reflects a 34 percent premium over Electronics Boutique’s closing stock price on Friday.

Shares of Electronics Boutique rose even higher — up $14.42 or 35.1 percent, to $55.54 — in trading Monday morning on the Nasdaq Stock Market. GameStop shares rose $2.15 or 10 percent, to $23.76 on the New York Stock Exchange.

The deal would combine two companies of similar size and sales. Grapevine-based GameStop operates about 1,800 stores and had revenue of $1.84 billion in its last fiscal year. Electronics Boutique, based in West Chester, Pa., runs about 2,000 stores and had sales last year of $1.99 billion.

The companies compete against big general retailers such as Wal-Mart Stores Inc. Movie-rental chain Blockbuster Inc. is also seeking more of the game market.

GameStop said the deal would add “significantly” to earnings per share in the second half of this year and coming years. It said the combination would create cost savings beginning in fiscal 2006, which begins next February.

The boards of each company unanimously approved the deal, which is subject to approval by antitrust regulators and shareholders of both companies.

Electronics Boutique founder and Chairman James Kim, who controls about 47 percent of its voting shares, and Leonard Riggio, who owns about 16 percent of GameStop’s voting stock, have each agreed to vote their shares for the sale, the companies said.

Shareholders of Electronics Boutique would get $38.15 in cash plus 0.78795 shares of GameStop common stock for each share of Electronics Boutique.

Based on Friday’s closing prices, GameStop would pay $55.18 in cash and stock for each Electronics Boutique share.

GameStop said it would issue about $950 million in bonds to finance the deal.

GameStop chairman and chief executive R. Richard Fontaine said the acquisition would let his company enter new international markets and compete better in the hard-fought U.S. video-game business. He said GameStop planned to continue its aggressive store growth plans.

The combined company will have annual revenue of about $3.8 billion and more than 3,200 U.S. stores and nearly 600 stores in Canada, Europe, Australia and New Zealand.

GameStop said Fontaine would remain chairman and CEO and Daniel A. DeMatteo, vice chairman and chief operating officer, will stay in those jobs.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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