Hot Topic pays 122% premium to acquire Geeknet

Declining sales and mounting losses at online retailer Geeknet weren’t enough to deter Hot Topic from paying a steep price to acquire the retailer of products designed to appeal to the geek in everyone.

Los Angeles-based Hot Topic, operator of 650 specialty stores, entered into an agreement with Fairfax, Va.-based Geeknet to acquire the company for $17.50 a share, a 122% premium above Geeknet’s closing share price of $7.90 on Friday, May 22.

Geeknet sells collectibles, apparel, gadgets, electronics, toys and other retail products for technology enthusiasts and general consumers through the ThinkGeek website and certain exclusive products to the company's wholesale channel customers, of which Hot Topic was one. The strategy has yet to yield meaningful profits.

The company lost $8.3 million on sales of $140 during its most recent fiscal year and lost $3.9 million on sales of $19 million during the recently ended first quarter.

"We are pleased to have entered into this agreement and look forward to adding Geeknet's innovative products and services to our portfolio," said Hot Topic CEO Lisa Harper."Geeknet's unique concept and approach to the online retail community is a strong fit with our business strategy, which is focused on delivering great products for avid fans of various licensed properties, and we are excited about the opportunity to help drive profitable growth and further enhance value for Geeknet's customers."

The deal, valued at $122 million, will be completed by means of a tender offer the companies said would begin shortly with owners of 21% of the outstanding shares already tendered.

"Our board and management team believe this transaction is in the best interest of the company and its stockholders," said Geeknet CEO Kathryn McCarthy. "We remain focused on increasing our visibility, providing a platform to stimulate ideas and creativity, and expanding our product offerings to keep up with industry and customer demands. As a subsidiary of Hot Topic, Geeknet will be well-positioned to achieve these goals."

Hot Topic, Inc. is a portfolio company of Sycamore Partners, a private equity firm based in New York specializing in retail and consumer investments.