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To: PAL who wrote (136566)	7/14/1999 11:09:00 AM
From: Dorine Essey	Respond to of 176387

By Eric Auchard NEW YORK, July 14 (Reuters) - Online computer retailers Onsale Inc. ONSL.O and Egghead.com Inc. EGGS.O on Wednesday said they agreed to merge in a $400 million stock deal that reflects escalating competition, pricing pressure and slumping stock prices in the industry. The merger comes as major competitors have turned their attention to the fast-growing online computer and consumer electronics retail market, including online retail giant Amazon.com Inc. AMZN.O, which Tuesday announced plans to expand into the business. Terms of the deal call for Onsale shareholders to exchange 0.565 share for each outstanding share of Egghead.com, in a tax-free transaction that will result in current Egghead.com shareholders owning about 47 percent of the combined company. In a statement, the companies said their combination will create a leader in online retailing of computer products and related technology with a combined 1999 sales rate approaching $500 million. The new company will operate under the name and Web address of "Egghead.com" with auctions and sales of surplus goods under the Onsale banner, they said. The store can be found on the Web at egghead.com. "On the Internet, scale and brand matter," said Jerry Kaplan, Onsale's CEO. "Our plan is simple: combine two top technology retailers to create a clear market leader." Kaplan said the companies' strategy was to "pool our marketing budgets to drive a single brand around the Egghead.com name; leverage the resulting traffic with Onsale's high visitor-to-customer conversion rates; and increase efficiency by eliminating duplicative operating costs." Jealous of the online market's efficiencies, top computer makers like Dell Computer Corp. DELL.O, IBM IBM.N and Gateway Inc. GTW.N have also erected online storefronts, elbowing into increasingly crowded retail space and bringing about ever-tightening profit margins. Despite fragmentation, Internet market researcher Jupiter Communications has projected the online computer retail market will surge to $6.4 billion in sales by 2002 from $2.1 billion in 1998 and represent the No. 2 category of Internet-based retailing, behind online travel. The merger is intended to be a pooling of interests, and is subject to approval by shareholders of both companies, regulatory approval and other customary closing conditions. Executives and directors of both companies have agreed to vote their shares in favor of the proposed transaction. The new Egghead.com will be headquartered in Menlo Park, Calif., with operations situated there and in Vancouver, Wash., the current Egghead headquarters. Egghead.com's George Orban will become chairman of the combined company, and Onsale's Jerry Kaplan will serve as chief executive. The board of directors will consist of four directors from each company and one director selected mutually. Executives from both companies will join to form a single management team. Onsale was advised by Morgan Stanley & Co. Inc. and Egghead.com was advised by Hambrecht and Quist LLC. Onsale shares were down 25 cents at $22.25 in early trading Wednesday, from a peak of $108 set during last December's Christmas sales euphoria among online retailers. Shares of Egghead, the longtime software retailer that last year converted itself into a purely online retailer, were up 38 cents to $12.44 Wednesday morning, but down from a high of $40.25 also achieved during the 1998 holiday sales rush. REUTERS Rtr 09:41 07-14-99