SAN FRANCISCO (06/26/2000) - Internet-based grocery delivery service Webvan Group Inc. announced Monday that it will buy competitor HomeGrocer.com Inc. in an all-stock deal valued at US$1.2 billion. The purchase would further consolidate a sector of electronic retailing that has struggled to prove its long-term profit potential.
The deal was Webvan's response to the "evolving" online commerce marketplace, Chief Executive Officer George Shaheen said in a statement. He said the company is "moving early and aggressively" to strengthen its position in the consolidating retail electronic commerce sector. Webvan, like the other electronic commerce leaders, delivers multiple types of goods to consumers' homes.
Webvan's big deal comes as Internet retailing faces increasing skepticism from investors and Wall Street analysts. Last Friday, electronic commerce giant Amazon.com Inc. lost nearly 20 percent in value after analysts questioned its creditworthiness.
The purchase price in Webvan's deal represents a premium of more than 15 percent over HomeGrocer's market value at the end of trading on Friday.
When Webvan held its IPO (initial public offering) in mid-March, shares gained less than 20 percent in their first day of trading, a modest bump for an Internet stock. The same week, online grocer Peapod nearly went out of business after the company's CEO resigned and backers withdrew a $120 million round of financing. Dutch supermarket conglomerate Royal Ahold later bought 51 percent of Peapod for $73 million.
Webvan said the deal for HomeGrocer.com would enable both companies to lower marketing costs and extract higher revenues from costly distribution and fulfillment centers. In July 1999, Webvan contracted with the construction firm Bechtel to build up to 26 of these centers for $1 billion. Webvan and HomeGrocer already operate in nine cities and plan to extend their reach to 13 cities by the end of the year. Shaheen, a former head of Andersen Consulting, would keep his position as Webvan's CEO, and founder Louis Borders would remain as chairman of the board. Netscape founder Jim Barksdale would also join the board of the company.