AST to Buy Tandy’s Computer-Making Assets : Technology: The deal strengthens AST’s position in a competitive market. Tandy will focus on its retailing operations.

AST Research Inc. agreed Wednesday to buy the computer manufacturing assets of Tandy Corp. for as much as $175 million, in a deal that will help AST compete with the major players in the field even as it removes one of them.

AST said it will buy Tandy’s three computer manufacturing plants in Texas and another in Scotland. It will also buy Tandy’s Grid Computer Systems portable computer subsidiary and its European computer marketing unit, Grid-Tandy Europe.

“This was such a good fit because we hardly compete with each other,” said Safi U. Qureshey, AST’s president and chief executive. “Plus, they have good technology in the pen and multimedia areas.”

The deal will scuttle Tandy’s plans to spin off the manufacturing unit as a separate company. Tandy, based in Ft. Worth, Tex., has struggled for years to make money in electronics manufacturing and was an early player in personal computers. But now the company has chosen to focus exclusively on retailing.

The deal between Tandy and AST is part of an ongoing consolidation in the personal computer business, which is racked by price wars that have made it tough for smaller companies to compete.

Analysts said the deal offers strategic advantages for Irvine-based AST. It could give it a 6.2% share of the U.S. personal computer market, up from 2.8%, according to estimates from International Data Corp., a market research firm. Worldwide, AST’s market share would rise from about 2.2% to 4.1%.

With about $1.7 billion in annual revenue, AST would still be smaller than rivals such as IBM, Apple, Compaq and NEC. But it would effectively join the top tier of computer makers, which can offer better prices because of the volume of equipment they sell. As consolidation in the computer market grows, the Top 10 computer makers now account for 54% of the total market, IDC said.

AST has about 4,000 employees. Officials could not say Wednesday how many it will acquire from Tandy. The parties expect to reach a final agreement by July 1.

“You have the haves and the have-nots in the computer industry, and AST is one of the haves,” said Steve Eskenazi, an analyst at investment bank Alex. Brown & Sons. “It’s too early to say whether they got a good deal. But this definitely allows them to get to critical mass faster.”

The deal will also give AST its long-sought manufacturing plant in western Europe. The company already has plants in Asia and the United States. The company’s plant in Fountain Valley now operates at full capacity.

The pact also gives AST a foothold in pen-based computers. Tandy has strength in multimedia technology too, which combines sound, video, graphics and text.

“From Tandy’s perspective, in this computer industry, volume is a critical factor in maintaining profits and staying competitive,” said Dwain Hughes, treasurer for Tandy Corp.

If AST picks up all Tandy accounts, the acquired assets could generate an additional $700 million in annual revenue, analysts said.

Qureshey said the company had to pounce on the opportunity with Tandy, which was losing money and preparing to spin off the manufacturing operations as a company called TE Electronics.

“It was not making sense for them, and they wanted to focus on their other businesses,” Qureshey said. “We wanted to focus on the computer business, and now we’ve picked up what used to be a closed market: Radio Shack stores.”

Tandy will take a charge against earnings of $70 million related to the divestiture of all of its manufacturing operations, including the computer plants. The assets involved and the exact price still have to be worked out, but $175 million is the most AST will pay.

AST will pick up Tandy’s Victor and Grid computer brands, as well as contracts to manufacture computers for others.

AST will pay over three years in cash or in cash and notes. It will not acquire accounts receivable for the Tandy assets.

In Wednesday’s NASDAQ trading, AST rose $1 a share to close at $16.125, and Tandy gained $2 to close at $31.125.