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Fry's/Outpost Deal Causes Egghead's Demise

12/03/2001 02:00:00 AM Eastern

Fry's has consummated its on-again, off-again marriage with CE e-tailer Outpost.com.

Following the $8 million cash-for-stock merger, Outpost.com (formerly Cyberian Outpost) became a wholly owned subsidiary of the closely held 19-store specialty chain and is no longer publicly traded.

The move gives Fry's its first e-commerce platform, as well as Outpost's database of some 1.5 million customers.

As part of the merger agreement, Fry's will also provide Outpost with $13 million in loans. The funds will be used to extricate the e-tailer from an existing buyout agreement with PC Connection, from which it received two lines of credit worth as much as $8 million, and to pay off Cyberian's secured debt and provide funds for working capital.

Darryl Peck, Outpost.com's founder, president and CEO, stated, "Fry's acquisition of Outpost.com proved to be our best opportunity to enhance stockholder value. Outpost.com's employees and management are excited to join the Fry's family and extend to the Internet Fry's philosophy of being the one-stop supplier to the hi-tech professional.''

The merger was the death knell for Egghead.com, which had been struggling under Chapter 11 bankruptcy protection and finally ceased operations last month after Fry's backed out of a $10 million buyout offer. Aside from Fry's decision to acquire Outpost — its original takeover target — another possible deal killer was Egghead's privacy policy, which prohibits it from sharing customer information with outside parties. Fry's wanted access to at least 90 percent of Egghead's active customer profiles as a stipulation of the proposed purchase.

Privately held Fry's initially agreed to buy Outpost in July for some $22 million in an effort to establish an e-commerce presence, after taking a 10-percent stake in the company in May. Outpost had already agreed to a stock-for-stock merger with PC Connection, a direct marketer of computer systems and peripherals, that was valued at about $25 million and set to close during the third quarter.

By August, Fry's did an about-face by withdrawing its bid for Outpost and agreeing to purchase Egghead, following its bankruptcy filing. Meanwhile, PC Connection was believed to have soured on its own acquisition plans for Outpost due to a stipulation of its own that the e-tailer's net worth be no less than $14 million at the time of closing.

Fry's was founded in 1985 by brothers John, Randy and Dave Fry. Envisioning their business as a "one-stop shopping environment for high-tech professionals," they built the operation from a single 20,000-square-foot location to a 19-unit chain with stores in Arizona, California, Oregon and Texas that range from 50,000 to 180,000 square feet and carry 50,000 SKUs. Annual revenue was about $1.1 billion last year, according to TWICE estimates.

It is unclear how the purchase will impact Outpost's online joint venture with Tweeter Home Entertainment Group, which sells high-end CE through a branded department at www.outpost.com.

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