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Wattles' Increased Hardware Presence Fuels Speculation

18 Aug, 2005 By: Holly J. Wagner

Mark Wattles

Hollywood Video founder and former CEO Mark Wattles is increasing his presence in the hardware market, but not all of his overtures are welcome.

Wattles, who took over Ultimate Electronics after failing to take Hollywood private or sell it to Blockbuster Video, told the Securities and Exchange Commission (SEC) this week that he owns 2,807,809 shares, or 11.4 percent, of Tweeter, up from his earlier stake of 9.78 percent.

The purchase and Wattles' statements to the SEC have fueled speculation that he is trying to cobble together a hardware chain with the muscle to challenge market leaders Best Buy and Circuit City.

Wattles' filing shows he has been actively buying the shares for investment purposes since June 10 and that he had contacted Tweeter's management suggesting the company raise money by selling equity or other securities. Wattles might put up capital under “appropriate circumstances,” the filing stated, and it did not rule out a takeover or merger.

Tweeter responded that the company is not interested.

“Based on his letter, Mr. Wattles has radically changed his opinion of Tweeter's capital position since my conversation with him just two weeks ago,” Tweeter president and CEO Joe McGuire said. “At the time, Mr. Wattles told me that he was purchasing Tweeter shares because he saw them as a sound investment. It is also unusual to attach such a letter to a 13D amendment, particularly as Mr. Wattles is now affiliated with Ultimate Electronics, which competes with Tweeter in certain markets. To suggest publicly that Tweeter, a competitor and publicly-listed company, may be undercapitalized in the future is highly inappropriate.”

Best Buy has 690 stores in the United States; Circuit City has 619. Ultimate Electronics has 32 U.S. stores, while Tweeter has 160.

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