BLUEFLY CUTS DEBT, SOROS BOOSTS STAKE
Byline: Valerie Seckler
NEW YORK — Struggling Internet off-pricer Bluefly Inc. said Wednesday it has wiped $20 million in long-term debt off its books by converting those obligations to preferred equity — owned by Soros Private Equity partners — and bringing those investors a 72.8 percent stake in the dot-com.
The financing arrangement signals the closing of the second phase of a three-part deal the dot-com struck with Soros in October.
Naturally, it’s good for Bluefly — which has yet to achieve profitability since going live online in September 1998 — to be relieved of the $20 million in obligations, which, Jonathan Morris, executive vice president of Bluefly, noted, accounted for all of the company’s long-term debt, and to be saddled only with short-term debt, including about $6 million on its accounts receivable ledger.
Ironically, though, the size of Soros’s stake in Bluefly also hangs a big question mark over the dot-com’s future course. Those who fund aggressive investments in young Internet businesses typically have sought to influence, if not control, management and operation of these firms. But on Wednesday, Morris played down speculation that Soros might either seek to shake up management of the e-tailer or seize control of its board. Prior to the conversion of Bluefly’s debt into equity, Soros Private Equity held a nearly 20 percent stake in the Manhattan-based company.
“They’ve been our largest shareholder for a long time, and we’ve never had an issue where it’s been them versus us,” Morris said. Soros first took an interest in Bluefly back in 1999. “They’ve brought us a golden Rolodex, and have given us good counsel regarding our marketing strategy.”
So far, their majority stake in Bluefly has brought the Soros group a second seat on Bluefly’s seven-person board, with the investors now represented by Neal Moszkowski and David Wassong.
The third part of the deal with Soros marks Bluefly’s bid to raise up to $20 million in fresh funds from its shareholders. Beginning today, Bluefly will mail to its shareholders of record as of Feb. 7 a prospectus that will enable them to buy 1.735 transferrable rights for each share of Bluefly stock owned. Each right, in turn, will entitle the holder to purchase one share of Bluefly for $2.34 per share. If shareholders buy less than $20 million of Bluefly stock, the Soros group will make up the difference, up to $10 million.
When the deal with Soros was first struck, the investors immediately invested $5 million for preferred stock in Bluefly, convertible into common at $2.34 a share.