Japan-Led Group Buys 31% of Buy.com
Internet retailer Buy.com Inc. said Thursday that an investment group led by Softbank Inc., the giant Japanese Internet investment firm, purchased $165 million worth of stock in the Aliso Viejo company.
The deal gives Buy.com a last round of financing before a planned initial public stock offering and makes Softbank, whose other Internet holdings include stakes in Yahoo Inc., E-Trade Group Inc. and ZDNet, the largest shareholder in Buy.com with a 31% stake.
“We have obviously very aggressive plans that require capital and the money is going to be used to continue along those plans,” said Greg Hawkins, chief executive of Buy.com. “We hope to file for a public offering in the near future.”
Wall Street and the technology industry have been anticipating a Buy.com stock offering for nearly a year. But company officials declined to say why they have yet to go to the public markets.
Buy.com was founded in 1996 by Scott Blum, who cut his teeth at Irvine-based Pinnacle Micro Inc. The company pioneered the strategy of selling goods online at the lowest possible price--often at cost--and making money on advertising, a practice mimicked by companies giving away computers and Internet access.
Softbank, which invested $60 million in Buy.com in two previous rounds of financing, brought in additional partners in the deal announced Thursday. They include Paris-based Vivendi S.A., whose diversified global operations include telecommunications and publishing, and epartners Capital Ltd., a unit of media mogul Rupert Murdoch’s News Corp.
Masayoshi Son, Softbank’s founder and president, has personally invested $1.7 billion in more than 100 Internet companies. In addition, Softbank and its venture capital arm have sunk $906 million into eight Internet firms that have gone public, an investment that industry experts say has grown to nearly $14 billion.
Softbank recently divested itself of another Orange County technology firm, selling its 80% stake in Fountain Valley computer memory manufacturer Kingston Technology back to the company’s founders for $450 million. Softbank had purchased the stake three years ago for $1.5 billion in cash and stock.
Vivendi and Australia-based News Corp. are the only other outside investors in Buy.com. Company officials declined to say how much they invested or what percentage of Buy.com they own.
Buy.com officials said the Softbank group bought shares both from existing shareholders and the company, but declined to identify the selling shareholders, disclose how much they sold or say why they sold. Buy.com also declined to say how much of the latest round of investment was new capital to the company. Softbank officials declined to provide details on their stake in Buy.com.
Buy.com sells a variety of consumer goods, including computer hardware and software, books, videos, computer games and music. Its slogan: “The Lowest Prices on Earth.”
“They will draw customers who care only about price, which is about 25% of the online population,” said Carrie Ardito, an analyst with Forrester Research. “The only way to keep them is customer service.”
Earlier this year, Buy.com angered its customers with several service glitches, including one that led to a lawsuit accusing the company of intentionally pricing items incorrectly in order to draw traffic to its Web site.
“Their key is going to be whether or not they can execute their plan,” Ardito said. “They’ve certainly done a good job of building a brand, they’re rising on the traffic rankings and they’re on everybody’s radar screen as someone to watch.”
Buy.com on Thursday also said that the company plans to open operations in Europe and Japan. Hawkins said a non-U.S. operation would begin by the end of the year.
The company’s strategy has been to reduce overhead by partnering with a single distributor of goods in a variety of categories. For example, Ingram Micro Inc. is Buy.com’s sole supplier of computer hardware and software.
That strategy has worked in the United States where distribution in many retail categories has been consolidated and highly automated, but the infrastructures in other countries generally are less developed and could cause Buy.com to adjust its approach.
When Buy.com expands into Europe, Ingram Micro will be its supplier for computer goods, but other categories may have to wait while the company decides how best to build its distribution chain.
“I would expect that we will open with a limited set of categories” in Europe, Hawkins said. “There’s nobody that’s global or even pan-European like Ingram is. From a distribution standpoint, Europe is not as mature, there’s no question about it.”
