Fashionmall spurns suitors, may go out of style
NEW YORK, March 4 (Reuters) - Fashionmall.com's chief executive is a hard man
to charm. Just ask Ramy El-Batrawi, head of GenesisIntermedia, the most recent
suitor for the suddenly popular fashion Web site.
Fashionmall, which currently has a puny market value of $12.2 million, last
month rejected a $52.5 million bid from consumer products marketer
GenesisIntermedia Inc., just after it had fended off two other lower offers.
Why all the fawning? New York-based Fashionmall.com Inc. was hardly a
high-profile stock even during the height of Internet-mania. The company, which
last summer bought the assets of European e-tailing disaster Boo.com, is a
fashion Web site that connects consumers to online retailers, who pay a fee
based on site traffic.
One reason is that unlike other dot-coms, Fashionmall still has plenty of money
in the bank, making it attractive to bidders. The company has about $27 million
in cash, or about $3.60 per share -- double its current share price of $1-5/8,
according to Fashionmall's third quarter balance sheet.
"They have been efficient with marketing and cautious with what they are
spending, keeping a nice lean mean machine, and certainly that is going to be
attractive," Heather Dougherty, an analyst with Web research firm Jupiter Media
Metrix Inc.
Fashionmall's sudden popularity also may be of a different, more human, nature
-- greed. At least some of these bids appear to have been either publicity
stunts or attempts to book short-term profits, two industry sources said.
Any suitor for Fashionmall would have to mind its manners because about 46
percent of the shares are owned by CEO and founder Ben Narasin, who did not
respond to repeated phone calls for comment.
"Ben Narasin is a difficult person to pin down on selling the company," said
Rami El-Batrawi, Genesis' CEO. "We were disappointed and surprised, we thought
it was a really good offer. I don't understand the thinking behind it but you
can't fight somebody who controls the whole company."
GENESIS GETS A PERK FROM FAILED BID
El-Batrawi may be disappointed, but the merger talks appear to have turned into
a little boon for Genesis, which says it wanted to hook up Fashionmall with its
Centerlinq mall kiosks.
Genesis owned about seven percent of Fashionmall's shares when it published its
bid in a Dec. 29 press release. News of the bid caused a brief rally in
Fashionmall's shares and the stock hit its year high of $5 that day.
Genesis had bought its stake at an average price of $2.32 per share, according
to regulatory filings. Eleven days after its bid, Genesis started selling those
shares. It had sold 38 percent of its stake at an average price of $2.78 a
share by Jan 18, according to filings. Those transactions translated into a
profit of about $94,000.
On Jan. 22, Genesis said in a press release it now had sold 56 percent of its
Fashionmall holdings but that it remained committed to the deal. Genesis has
since dumped its entire Fashionmall stake, El-Batrawi said. A Genesis spokesman
was unable to say whether Genesis booked a profit or loss on the additional
sales, despite repeated requests.
The talks ended on friendly terms Feb. 7, and the companies said they were
considering a strategic partnership.
Genesis' bid came on the heels of two lower bids, which market watchers eyed
with skepticism. Internet holding company Sitestar Corp. on Oct. 23 offered
Fashionmall $3 per share. Fashionmall questioned the validity of the bid,
particularly in light of Sitestar's aborted offer to buy beleaguered Web
retailer MotherNature.com Inc., for which it cited a "lack of cooperation" from
MotherNature.
Fashionmall's and Sitestar's shares rallied more than 20 percent on the day the
bid was made. Sitestar, which owned an undisclosed amount of Fashionmall stock
when it made its bid, insists its offer was legitimate.
"Our bid was very much for real and if they were still interested and their
cash position was comparable to where it was when we made the offer we would
jump back in it in a minute," said Clinton Sallee, Sitestar president and CEO.
"The problem is you've got a 46 percent stockholder ... a proxy fight against
someone like that is a pretty futile effort."
Narasin's claim that Sitestar's bid was false was "a public posture," Sallee
told Reuters.
Then came Narax, a company that bills itself as a "Beverly Hills based M&A
firm." Narax, which did not return phone calls seeking comment, offered
Fashionmall $3.50 per share on Dec. 28 -- one day before the Genesis bid.
Narasin again said in a statement the bid wasn't legitimate, because Narax had
not approached him before trumpeting the offer in a press release.
"I believe that anyone who was truly serious about acquiring us would have
wanted to have discussions with us first," Narasin said at the time.
A BUSINESS MODEL THAT DOESN'T FIT
Narasin is fighting for Fashionmall's independence, but the firm must change
its strategy to survive, analysts say.
Fashionmall's main stumbling blocks are that it doesn't allow shoppers to
search across retailers for a specific item; it doesn't help them through the
purchase process; and it rarely forms lasting customer relationships, analysts
say.
"In many cases intermediaries like Fashionmall.com play a flash-in-the-pan
role," said Evie Black Dykema, a senior analyst at Forrester Research. "They
help consumers and retailers shake hands, but then after that they are out of
the picture because now the consumer knows about the retailer."
And Fashionmall may face competition from more traditional fashion publishers -
with well-known brand names - looking to muscle in on their space.
"They positioned the company as this fashion portal, and the opportunity was
available," said Jupiter's Dougherty. "Now a lot of the more traditional
publishing areas that focus on fashion are increasing their awareness and they
could certainly go after the same market, and they have relationships with the
advertisers Fashionmall is going after."
Fashionmall's best chance for survival may be teaming up with a well-known name
to provide back-end retail functions.
"For Fashionmall their best opportunity would be to work with a branded content
provider, and handle the back-end functions that assure the provider that the
products will actually be delivered," Forrester's Dykema said. "I really can't
say they well-prepared to do that." |
