Cendant May Buy Value America

WASHINGTON (04/03/2000) - Top officials from Value America, a struggling e-commerce retailer based in Charlottesville, Virginia, met here last week with representatives of Cendant, a New York City-based corporation, to discuss Cendant's possible purchase of Value America, according to knowledgeable sources.

Value America executives declined comment on the matter late last week. A Cendant spokesman didn't return a telephone call seeking comment. The details of the potential deal, which may be limited to a cash investment by Cendant, haven't been disclosed. On Friday, Value America announced "advanced discussions" with potential investors that the company hopes will soon give it enough money to stay in business for the rest of this year. In its latest annual report, filed Thursday with the Securities and Exchange Commission, the company revealed a March 29 statement by PricewaterhouseCoopers saying Value America "has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern."

Value America faces several private class-action lawsuits, according to its annual report. In December, Value America laid off half of its employees, and hacked its list of vendor partners from 450 to 50 in an effort to stanch massive financial losses. The company Web site, which used to hawk everything from underwear to barbecued spareribs to cheesecake, now concentrates on five product categories, including computers, software, electronics, office supplies, and entertainment.

The company is reinventing itself under the guidance of Glenda Dorchak, who took up the reins as president after Value America's board of directors ousted founder Craig Winn in a messy internal battle last November. A special board committee is exploring "strategic opportunities," ranging from investor partnerships to an outright sale, with the help of Deutsche Bank Alex Brown.

Even though Value America is teetering financially, it could still recover with the help of a cash infusion. And its technological infrastructure and expertise makes it a valuable e-commerce acquisition.

Cendant owns the Century 21 real estate franchise, Avis, and the Days Inn and Ramada hotel chains, among other subsidiaries. Its "affinity partners" include autovantage.com and shoppersadvantage.com. Winn founded Value America in 1996, and spent the next several years building the company into a virtual e-commerce empire. Winn's concept of an inventory-less business model, in which Value America touched none of the merchandise it sold, was enough to attract millions of dollars in investments from Federal Express chief Fred Smith and Paul Allen's Vulcan Ventures, among others. But Winn's entrepreneurial style didn't translate into effective day-to-day company management.

By late last year, Value America found itself dangerously overextended. Besides disgorging much of its staff, the company abandoned plans to build a new campus headquarters on 34 acres of land near Charlottesville. The released employees were largely support staff who worked on fulfilling orders for "the less efficient vendors" that weren't completely computerized, according to Value America CFO Michael Waide. "We'd expanded with a lot of vendors that are not really complementary to our business model," said Waide, who joined the company six weeks ago. In its SEC filing Thursday, Value America revealed that the Federal Trade Commission launched a preliminary inquiry into its business practices.

The inquiry, launched in November, centered on the company's advertising of free or reduced-cost computer systems, which the FTC worried was deceptively linked to an Internet service provider subscription requirement, according to the report. Waide said the company complied with the FTC's initial request for information and hasn't heard from the commission since then. An FTC spokeswoman declined to comment.

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