>Kent, Connecticut, June 14 (Bloomberg) -- Robert Bowman, president and chief executive of CyberianOutpost.com Inc., has lost track of the offers he's received from companies looking for a buyer or merger partner.
The phone calls are mainly from smaller competitors, said Bowman, who has led the six-year-old Internet retailer of computers, cameras and other gadgets since September.
``There are a lot of people out there who are trying to figure out the next step,'' said the 45-year-old former president and chief operating officer of hotel and gaming company ITT Corp.
Since 1994, Amazon.com Inc., Value America Inc. and 31 other publicly traded online retailers have racked up more than $5.2 billion in losses. Online auctioneer eBay Inc. is the only major profitable Web retailer. CDnow Inc., with $212 million in losses, has said it won't turn a profit until late 2002. Value America forecasts losses will extend at least through next year.
That's made venture-capital firms wary about bankrolling the industry, and dried up demand for initial public offerings. The Bloomberg U.S. Internet E-Commerce Index of 48 companies has lost almost half its value this year, led by a selloff of technology stocks in March and April.
``You will see a lot of bankruptcies, you will see a lot of mergers and acquisitions,'' said Matthew Cowan, a partner at venture-capital firm Bowman Capital Management.
Forrester Research Inc. estimates that the largest 50 Web sites need an average of $43 million each to build their businesses this year. With more than 300 online retailers competing for funds, the Internet research firm projects most Web stores will go out of business by the end of next year.
``The phone has been ringing off the hook,'' said Tim Miller, president of Webmergers.com, which provides research on Internet mergers and acquisitions and lists online properties for sale.
Strategic Acquisitions
The larger Internet companies will seek out smaller rivals to gain customers, technology or workers, analysts said.
For example, Pets.com Inc., an online pet-supply store best known for television commercials featuring a sock puppet, yesterday bought Petstore.com's customer database, brand name and other assets for about $13.7 million in stock.
Traditional retailers and international companies also may try to buy the expertise and technology they need to go on line. Royal Ahold NV, the Dutch grocery giant, rescued Illinois-based online grocer Peapod Inc. with a $73 million investment in April. Peapod's cash reserves had fallen to $3 million because of the $71.3 million in losses accumulated since it was founded in 1989.
``A lot of e-commerce businesses' only alternative is figuring out how to hook up with a strategic player,'' said Harold Bordwin, president of Keen Strategic Advisors LLC, a firm that arranges financing and sales for cash-strapped clients.
Some companies will be forced to sell at a fraction of the money invested in them, analysts said.
Closely held Healthshop.com, a vitamins and diet-supplements retailer, in September received about $25 million in funding from Warner-Lambert Co., Vantage Point Venture Partners and Delphi Ventures.
It was sold last month for $3.5 million in stock to Omni Nutraceuticals Inc., a money-losing company, after failing to obtain another round of financing.
`Dot.Gones'
More than a dozen online retailers already have become so-called ``dot.gones'' as backers cut their losses. Last month, media giants Viacom Inc. and The Walt Disney Co. closed their respective toy sites, Redrocket.com and Toysmart.com. Closely held ToyTime Inc. shut down its ToyTime.com and BabyTime.com Web sites last week and put their assets up for sale.
CompUSA Inc. shuttered its cozone.com site in March after spending about $17 million on national T.V. advertisements featuring billionaire Donald Trump and San Antonio Spurs basketball player David Robinson.
Other companies have been forced to slash costs and fire staff.
KBkids.com Inc., 80-percent owned by Columbus, Ohio-based Consolidated Stores Corp., last month dismissed its chief executive and a third of its staff. The company canceled a long- planned $210 million stock sale yesterday.
At least nine Web retailers that filed to sell shares before April have yet to come to market, analysts said.
``Investor confidence has pretty much gone away,'' said Forrester Research analyst Seema Williams.
Furniture.com Inc. hasn't sold shares after filing to go public in January. Last month, the company said it is considering other financing options after a drop in stock prices. It fired 29 workers in April. Rival Living.com, backed by Amazon.com, let 50 employees go in May.
Pendulum
Bowman Capital's Cowan said the investor pullback from online retailers has been overdone. The Boston Consulting Group and industry group Shop.Org are projecting Internet sales in North America will jump 85 percent this year to $61.1 billion.
``The pendulum swung too far one way and now has swung too far the other direction,'' Cowan said. ``Some companies that should be funded aren't getting funded.''
Still, some survivors are getting cash. EToys Inc., whose stock has dropped 85 percent the past year, yesterday obtained $100 million through the sale of preferred convertible shares. That gives it enough money to operate into late 2001.
Meantime, at least one investment fund is being formed to snap up financially distressed Internet companies. One fund, represented by Leonard Goldberger, a bankruptcy attorney at Philadelphia law firm White and Williams LLP, is raising as much as $100 million to help Internet companies keep their operations going until the market improves.
``We'll be very busy until the end of the year and then some,'' Goldberger said.
Jun/14/2000 16:23 ET |
