Scholastic backs out of eToys inventory purchase

Scholastic has backed away from plans to purchase Web technology, toys, customer lists and other inventory from defunct online retailer eToys.

Scholastic, which publishes children's books such as the Harry Potter series, as well as videos and software, placed a winning US$8 million auction bid Friday for the product inventory of the online toy retailer, which filed for bankruptcy earlier this month.

Scholastic said the purchase was contingent on getting the remainder of the reorganized company, specifically its Web-related technology and other assets, in a separate bidding process.

Scholastic planned to use the technology for the creation of its own Web site for parents, a spokeswoman said.

After the close of trading yesterday, New York-based Scholastic said it "concluded that the acquisition of selected eToys assets did not meet [its] threshold for accelerating or reducing the costs of its Web initiatives."

Robert J. Dehney, an attorney at Morris, Nichols, Arsht & Tunnell in Delaware, which is representing eToys in bankruptcy court, said the bidding process for the remainder of eToys closed yesterday and said those bids still need to be reviewed. He declined to discuss Scholastic's move or which other companies might be in the market for the company's assets.

EToys filed for Chapter 11 protection on March 7, after reporting a loss of $74.5 million for its third fiscal quarter, which ended in December. The company, which was in danger of running out of money by the end of this month, had already laid off 700 of its 1,000 workers. It laid off the rest in early February.

Shortly before eToys formally made its bankruptcy filing, New Brunswick, N.J.-based health care products maker Johnson & Johnson announced that it was buying the online retailer's BabyCenter Inc. subsidiary for $10 million. BabyCenter operates a Web site that provides information about pregnancy and the development of infants, plus an affiliated site for parents of older children.

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