GLOBAL SPORTS TO ACQUIRE FOGDOG
Byline: Valerie Seckler / Vicki M. Young
NEW YORK — A couple of sports-driven Web players are teaming up in the Internet’s continuing consolidation game, one that’s shaping up as a holiday survival contest: E-commerce enabler Global Sports has entered into a definitive agreement to acquire e-tailer Fogdog Inc. for roughly $38 million.
Terms of the merger deal, announced Tuesday in a joint statement, call for Global Sports to issue about 4.95 million shares of its common stock in exchange for all outstanding shares of Fogdog, which would amount to about 15.6 percent of Global Sport’s outstanding common shares following consummation of the transaction. That means Fogdog’s shareholders would receive 0.135 of a share of Global Sports common for each share of Fogdog they own.
The arrangement would bring Global Sports its 14th e-commerce activewear and sports gear business — along with the $42.5 million that was on Fogdog’s balance sheet on Sept. 30, the end of its third quarter. For Fogdog, the merger provides some shelter from the stormy fund-raising climate for business-to-consumer plays online and harsh spending demands that can drain millions of dollars seemingly overnight.
Global Sports, which develops and operates the sports e-commerce units of specialty and mass retailers, and pure plays, counts on its roster: Kmart-controlled BlueLight.com, QVC.com, buy.com, FoxSports.com, Oshmans.com, SportChalet.com, theathletesfoot.com and TheSportsAuthority.com.
“This has been a turbulent market environment for pure-play B2C models,” Tim Harrington, chief executive officer of Fogdog, said in the statement. “I look forward to joining the executive management team of the company.”
In a conference call with analysts to review Fogdog’s third-quarter results, Harrington further noted that he has observed “a lot of our competitors going out of business.” Harrington will be an executive vice president at Global Sports, but his precise role has not yet been defined.
Michael Rubin, ceo of Global Sports, told WWD on Tuesday: “Acquisitions are not part of our strategy, but we thought Fogdog was a compelling opportunity. The company has tangible net worth of $45.4 million, which we get to add to our balance sheet, $25 million in market capitalization, some additional brand assortment that we didn’t have, and we get to eliminate a competitor.”
Global Sports, headquartered in King of Prussia, Pa., and Redwood City, Calif.-based Fogdog are expecting to complete the deal during the first quarter of 2001, following approval from shareholders in Fogdog and regulatory officials. The deal’s rough valuation of $38 million is based on the closing price of Global Sports’ stock Monday. On Tuesday, Global Sports’ shares added 34 cents to close at $8.09 in Nasdaq trading.
Following completion of the merger, Global Sports plans to integrate Fogdog’s Web site into the Global Sports centralized infrastructure, including its common pool of inventory, product information database, fulfillment center in Louisville, Ky., and customer-service call center in King of Prussia.
In addition, Global Sports aims to leverage the Fogdog label, which has built some brand equity with consumers, as well as its customer base of 300,000 people, and its e-mail database of 600,000 names. Global Sports will continue Fogdog’s performance-based, online marketing efforts, but will eliminate nonperformance based marketing, such as TV commercials and events promotions and sponsorships. A “significantly reduced” Fogdog unit will remain in Redwood City, the firm said.
Separately, Fogdog Sports reported a net loss of $13.1 million, or 36 cents a share, for the third quarter ended Sept. 30, compared with a loss of $8.5 million, or $4.44 a share, a year ago. The loss includes noncash charges. Excluding the charges, the losses came to $8.5 million, or 23 cents a share, based on 37 million common shares outstanding, versus a prior-year loss of $7.1 million, or 28 cents a share, based on 25 million shares.
Fogdog’s third-quarter sales skyrocketed more than threefold, totaling $5.9 million against $1.5 million, but rose only 1 percent from its second-quarter revenue of $5.8 million. Fogdog spent $10.8 million on marketing and sales during the period, compared with $6.2 million a year ago.
For the nine months, Fogdog’s net loss was $45.5 million, or $1.26 a share, versus a loss of $15.1 million, or $6.04 per share. Sales tallied $16.4 million, up from $2.6 million. Fogdog raised $59.9 million after expenses when it went public in December 1999, selling 6 million shares at $11 a share. Fogdog’s shares on Tuesday closed at 88 cents, up 13 cents in Nasdaq trading. The issue has ranged between a high of $22 and a low of 56 cents during the past 52 weeks.