Compaq Computer Offers to Buy Troubled O.C. Firm Shopping.com
In a deal that underscores the runaway expectations of Internet retailing, industry giant Compaq Computer Corp. on Monday offered to purchase Shopping.com, a troubled and money-losing online merchant in Corona del Mar, for $220 million in cash.
The acquisition proposal comes a week after the end of the annual Christmas shopping season, which saw gift-buying via the Internet more than double to an estimated $3 billion. Along the way, shares of Internet-related companies have soared to dizzying heights as investors are banking that the medium is changing the way people shop.
Indeed, the proposed deal was a major reason why Internet stocks soared again Monday while the overall stock market fell.
Analysts said the plan is unusual given Shopping.com’s tumultuous past. Last spring, the Securities and Exchange Commission halted the trading of its shares for two weeks, citing wild swings in its stock price.
The company went public in November 1997 at $9 a share, and traded as high as $39 last March before trading was suspended amid concerns that its underwriter, Irvine-based Waldron & Co., was artificially inflating the price of its shares.
In addition, Shopping.com has lost $18.4 million through the nine months ended Sept. 30 on sales of $4.01 million, and has been through three chief executives in the last seven months.
But officials at the Houston-based computer colossus said they are more than willing to overlook those concerns for the bigger picture. The deal would build on Compaq’s leap into the consumer Internet business with last summer’s acquisition of Digital Equipment Corp. and its AltaVista Web search site.
The acquisition would allow Compaq to better compete with the likes of Yahoo Inc. and Excite Inc. by giving shoppers access to a wide range of products and services from nearly 1,000 merchants.
“We think Shopping.com is a struggling upstart with good technology that got hit with a sequence of very bad experiences,” said Rod Schrock, senior vice president and general manager of Compaq’s consumer products group.
The $19-a-share cash offer represents a 41% premium over Friday’s close of $13.16. On Monday, Shopping.com shares surged 41%, or $5.41, to $18.59 in OTC Bulletin Board trading.
The acquisition would mark the latest in a series of consolidations among Internet companies, notably America Online Inc.’s $4.2-billion deal to buy Netscape Communications Corp. as part of an effort to broaden AOL’s already large audience. As a result, the Internet retail landscape is changing from an open bazaar to walled-off gardens designed to corral potential customers into private shopping areas.
Analysts insist that Shopping.com is a bargain for a company as big as Compaq--which is debt-free and usually carries between $3 billion to $4 billion in cash on its balance sheet.
“Considering the market cap on other online retailers, this deal lets AltaVista get the [e-commerce] assets they need pretty cheaply,” said James McQuivey, a senior industry analyst for Forrester Research.
In September, the SEC accused Waldron of inflating Shopping.com’s stock price 255% by restricting the amount of shares available to trade.
Regulators charged the brokerage firm with parking Shopping.com shares in fictitious customer accounts, which kept clients from selling shares.
The National Assn. of Securities Dealers ordered brokerages that sold Shopping.com stock--including Waldron and Los Angeles-based Wedbush, Morgan Securities--to pay $400,000 in compensatory damages. Last month, the NASD suspended Waldron’s regulatory registration after the brokerage failed to pay its share of $350,000.
“This is all really old news and doesn’t have any impact on today’s news,” said Frank Denny, chief executive of Shopping.com. “The SEC has the right to look into whatever it wants to look into. But [Waldron and its staff have] nothing to do with us now.”
The board of directors and management of Shopping.com have unanimously approved the acquisition and will recommend shareholder acceptance, company officials said.
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