Silo to Buy 26 Federated Units in Southland

Atari Corp., the Sunnyvale computer and video game maker, confirmed Thursday that it has reached a tentative agreement to sell 26 of its ailing Federated Group consumer electronics stores to Silo Inc., a nationwide electronics retailer.

Terms of the deal, expected to close within months, were not revealed.

The tentative agreement calls for Silo, a Philadelphia-based subsidiary of the British retailing giant Dixons, to take over 21 Federated stores in Los Angeles and Orange counties and five in San Diego.

Silo already operates 10 stores in San Diego and was known to be shopping for an opportunity to expand farther north.

Atari officials said discussions with potential buyers for the remaining 14 Federated outlets in Texas, Arizona and Kansas are continuing. However, they declined to offer details. Earlier this week, a company official confirmed that Atari was discussing the possibility of selling those outlets to Fretter’s, a Detroit-based operator of 52 consumer electronics stores throughout the Midwest.

Silo and Fretter’s executives have been unavailable for comment on the talks with Atari.

The deal with Silo would bring renewed vigor to the already intensely competitive and price-sensitive Southern California consumer electronics market.

This market, which for the past several years has been dominated by Adray’s and Circuit City, is considered among the best in the nation because of its size, persistent economic vitality and seemingly insatiable appetite for electronic gadgets.

The deal also represents an opportunity for Atari to begin putting its ill-timed and ill-fated acquisition of Federated Group behind it and getting on with its primary businesses, making personal computers and video game systems.

Atari bought the Federated chain, which then had 91 outlets, in August, 1987, for $67.3 million. But within months of the acquisition, the operation soured and Atari was beset with losses. Last March, after announcing a loss of nearly $85 million because of the continuing poor performance of the retailing unit, Atari put Federated up for sale.

Analysts have said Federated was the victim of its own poor marketing efforts, aggressive price cutting by competitors and a continuing dearth of new electronic products to lure customers.

When Atari bought the chain, its chairman, Jack Tramiel, said the purchase was designed to build the company into an international electronics company that would sell everything from computer chips to finished goods.

However, within a year of the purchase, Atari sued Wilfred Schwartz, the founder and former chairman of Federated, and several of its financial advisers for overstating the company’s assets. Atari claimed that it would not have bought the chain if it had known its true financial condition.