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Egghead swallows Surplus

The retail chain buys Surplus Software, a direct marketer of computers, in a $31.5 million stock swap deal.

Egghead Software ="http: www.dbc.com="" cgi-bin="" htx.exe="" squote?source="blq/cnet&ticker=EGGS" "="">(EGGS) today announced the acquisition of Surplus Software, a direct marketer of computers, in a $31.5 million stock swap deal.

Egghead, foundering in recent months, acquired Surplus for 5.6 million newly issues of common stock and will pay off $5.6 million of Surplus debt.

Surplus Software, formed in 1992, is mainly a direct marketer of other companies' excess software and hardware inventories over the Internet. PC Meter, a New York research firm that tracks Internet users, ranked the Surplus Software site sixth among Internet commerce sites.

Egghead started selling products over the Internet last September.

"Egghead is traditionally a software house, and Surplus is more a hardware house, and each brings established vendor relations to the deal...Egghead is trying to bridge the old company with the new company and do it in a way that does not negatively affect the balance sheet," said John Taylor, an analyst with Arcadia Investment.

Analysts believe that the deal will guide Egghead through its transition while bolstering its presence in the e-commerce market. Taylor pointed out that the acquisition will help Egghead increase revenues without building new stores.

Egghead could use all the help it can get. The troubled software retailer closed half of its 156 stores in January, while posting a 7.5 percent drop in third-quarter revenue. In January, CEO Terry Strom and vice presidents Kurt Conklin and Ron Smith resigned.