CANTON, MASS. -Tweeter Home Entertainment Group has amassed an 8.5 percent stake in Sound Advice, the high-end A/V chain based in Dania Beach, Fla.
According to a 13-D filing with the Securities and Exchange Commission, Tweeter had acquired some 4.5 percent of Sound Advice stock between 1997 and 1999, and purchased an additional 159,000 shares within the past four weeks, triggering the SEC disclosure.
Tweeter president Jeff Stone told TWICE that while both parties had informally discussed merger possibilities in the past, the stock buys merely represent a “sound investment” for Tweeter shareholders.
“We owned 4.5 percent of Sound Advice for a long time, and with all the stuff going on in the industry, we felt that an additional investment made sense,” he said.
Tweeter’s most recent stock buys came on the heels of Best Buy’s purchase of former Tweeter acquisition target Magnolia Hi-Fi.
“If some day Best Buy buys Sound Advice, then we have a good investment in Best Buy. And if some day we should buy them,” Stone said, Tweeter would have a lower cost basis in Sound Advice shares. Whatever the outcome, he noted, the stock represents an attractive buy.
Stone stressed that despite his company’s substantial stake in the Florida chain, there is no hostile takeover in the works. “We didn’t even double our position,” he said. “I have a relationship with Peter [Sound Advice chairman/ CEO Beshouri]. We’re both on the board of the PRO Group. There’s no cloak-and-dagger stuff here.”
In a statement, Beshouri acknowledged that Sound Advice has held informal talks with Tweeter and other potential buyers, and has retained investment bankers to assist in the discussions. “But we have had no formal merger discussions with Tweeter,” he said.
He added, “At this time, we do not believe that any proposed transaction valued at the price levels at which our common stock is currently trading would represent an attractive proposition for our shareholders.”
According to a research note by Morgan Keegan & Co. analyst David Childe, Tweeter paid an average of $5.50 per share for its 336,000-share stake in Sound Advice over four years, and paid a high of $10 a share in its most recent purchase on Feb. 16. Even at that price, Childe wrote, Sound Advice stock “appears inexpensive” given its 12-times earnings multiple and the company’s expected 15 percent annual growth.
Should Tweeter ultimately acquire Sound Advice in a friendly merger, it would continue a pattern of purchasing fellow PRO Group members in search of an exit strategy. The deal would differ, however, in that Sound Advice would be the first publicly traded business to be bought out by Tweeter.