QXL, Ricardo Form European Web Auction Giant

SAN FRANCISCO (05/17/2000) - QXL.com PLC on Tuesday said it was merging with German rival ricardo.de AG, uniting two of Europe's biggest auction Web sites against the growing threat from eBay Inc. The combined company, to be called QXL ricardo PLC, will have 1.3 million registered users and a multilingual range of Web sites spanning the continent.

The merger might present the first serious challenge to eBay's hopes of dominating the auction business around the world. The merged company will have a presence in 11 European countries with combined membership of 1.3 million.

But sales on eBay's sites in the U.K and Germany, the two European countries where the San Jose, California-based has operations, have surpassed those of Ricardo and QXL combined in those countries. The merger will ensure QXL can survive in the face of U.S. giant eBay's rapid expansion in Europe, said Peter Misek, e-commerce analyst at Chase H&Q.

"They had to do it," he said of QXL's move. "If they fall behind eBay the game's over." The German company's shareholders will receive one QXL share for every ricardo share, valuing ricardo at 1.104 billion euros ($1.01 billion).

That is a 27 percent premium over ricardo's closing price on Monday. Ricardo shareholders will own up to 43.8 percent of the merged group, QXL said in a statement. Ricardo shares rose 20.6 percent to 120 euros on Germany's high-tech Neuer Markt. QXL was unchanged at 180 pence after rising as high as 198. EBay downplayed the threat posed by the QXL-Ricardo alliance.

"The European market is very competitive and QXL has been struggling to make inroads," eBay spokesman Kevin Pursglove in an e-mail to The Standard. "We have been anticipating some level of consolidation because so many of eBay's competitors do not have profitable business models." Pursglove said eBay's European users bought and sold more than $86 million in the first quarter, though some of those transactions took place on eBay's US site. Pursglove said the combination of the US site and European sites makes eBay stand out from the competition.

"As we move into new markets we are providing users a global marketplace plus a vibrant local trading community," he said. QXL's leadership of the European online auction market has been undermined by eBay's launch of British and German versions of its Web site. EBay entered the European market last year launching a site in the U.K and acquiring Germany's leading person-to-person auction site, alando.de, in June. The company has since launched sites in Japan, Australia and Canada, and has set its sights on France, home of eBay founder Pierre Omidyar. Company executives have said that international expansion is one of eBay's key goals as it seeks to sustain its brisk growth rate. In addition to person-to-person auctions, eBay launched its first business-to-business auction site, eBay Pro, in Germany earlier this year. The site competes with Ricardo.de's business-to-business site. EBay's European users grew by 52 percent to number 966,100 in the first quarter, though Misek said the figures included Europeans registered at its U.S. site. QXL had more than 500,000 users at the end of last year, its most recent figures. EBay said gross sales from its German and British sites surged to $86.92 million in the first quarter, dwarfing QXL's 5.2 million pounds ($7.87 million) in 1999's fourth quarter. Despite EBay's strong brand, QXL had an advantage in powerful technology that allowed it to roll out sites in different languages across Europe, Misek said.

Still, EBay also plans to start up in France, Italy and Scandinavia. QXL Chief Executive Jim Rose said ricardo's leadership of the German market and its operation in Switzerland, where QXL is not present, made the company a good fit. Both had similar business models, he said in a telephone interview, running business-to-consumer auctions as well as consumer-to-consumer. Both recently starting charging users to auction their goods. Launched in July 1998, ricardo has more than 670,000 registered users in Germany, Switzerland and Britain. Its German site auctioned goods worth 48.4 million marks ($22.61 million). Rose said other recent QXL acquisitions took the combined users figure to 1.3 million. Rose said there would probably be some integration of the two companies' Web sites after the deal closes around August. "We'll probably take the best of both," he said, citing ricardo's real-time auction technology as one feature QXL may add to its sites. He played down the likelihood of further acquisitions following a spate of purchases in recent months. Rose declined to discuss the company's recent financial performance ahead of its results statement on May 31, but said QXL had $100 million cash on hand.

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