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Rumble in the

GUS to take on Dixons

Great Universal Stores' take-over of is a serious threat to Dixons domination of the UK's computer retail market.

The two businesses have talked about synergy as all players in deals like this do. But they do exist in this case. GUS owns Argos and sends its catalogue into 17 million homes in Britain. Argos is run by Terry Duddy, a former chief exec of Dixon's PC World superstore chain, so he knows computer retailing. Steve Bennett, founder and CEO of Jungle, also knows the market and has got a good few months Web experience as well. He and Duddy have already started plotting the ways they can use Argos' coverage and muscle to drive traffic to the Jungle site.

The Jungle catalogue is going to appear in Argos stores for a start. And the first big additions to the Jungle site will be the introduction of online credit agreements, which Bennett reckons no one else is doing yet, and the appearance of brown goods. This fits with Jungle selling music and video, but currently this represents a very small part of the business.

GUS also owns the Innovations web site and catalogue - an A5 brochure of novelty high tech gadgets of questionable value. Bennett sees these products and the Innovations brand being a good fit with Jungle.

Jungle is doing good business but not without some pain and scary moments for Bennett. It expects to turnover £100 million this year and be profitable within the next seven months following the Christmas trading period. Bennett says the business has lost very little money in the last few months, but then it has been slashing overheads. An estimated 54 warehouse staff - a figure Bennett denies - have been laid off over recent months.

And it was credit squeezes that pushed Jungle into the arms of Great Universal Stores for £37 million. Bennett said the company could have carried on trading and using a fresh round of venture capital but "that would keep diluting the equity, and you don't end up focussing on the business."

The price is a major come down from the £700 million valuation the company got in February when investment bank UBS Warburg was appointed to examine a possible flotation. But Bennett said directors and staff had "all done reasonably well" out of the deal but conceded it wasn't "what we all pipe dreamed about a year ago." The £37 million price also includes £12 million to pay Jungle's debts.

Bennett launched Jungle in the middle of last year with £10 million of venture capital from 3i, which owned 25 per cent of the business.

It is interesting to look at Bennett's entrepreneurial history as it gives indications on what forced the sale of Jungle. He launched the mail order business Software Warehouse (SW) in 1992 and developed this into a 30-store retail chain. In April 2000 he sold off the stores to a team of the chains' managers and merged the mail order business of Software Whorehouse (as it was popularly known) into Jungle. The retail business, renamed One Stop Computer Solutions, was sold for £1 plus its stock value and it went belly up in August. Jungle was one of the creditors.

Bennett says suppliers viewed Jungle and SW as distinct businesses, but as Jungle had no trading history it must have used SW in some way to establish credit lines. And then when the SW shops shut this left the uncomfortable situation of its creditors still being Jungle's suppliers. This kind of thing doesn't please IT distributors and it is rumoured that Bennett has promised trade partners he will make good on the debts. The £12 million destined to pay off Jungle's debts will make sure of some goodwill.

It will also be interesting to see how Bennett fits into GUS. He has signed up for a four year tour of duty which insiders suggest is out of misplaced loyalty to his staff. He claims he is looking forward to the challenge. But instead of running things his way he will be reporting to an ex-Dixons man - and it is running things his way that has seen him make millions publishing magazines as well as by selling computers.

Bennett will be on a salary of £125,000 plus performance bonuses, a nice step up from the £40,000 he has paid himself in the past.

Bennett will have to wait for most of his money from the sale but 3i and staff will be sorted out after the deal goes through. Incidentally, prior to the GUS take-over Jungle COO Peter Weil emailed Jungle and ex-Software Warehouse staff to explain their share allocation. At the end of the statement he touchingly wrote "Please do not give Steve any grief, after all he has done over the last two years is to give away, fee of charge, shares in his company to you, very few owners that I know, would NEVER dream of being so generous."

About five per cent of the cash from the GUS deal will be shared amongst Jungle's 500 staff, excluding directors. This amounts to around £2,500 each. Weil is getting a little more than that. ®

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