BabyUniverse to Merge with eToys Direct

Mar 15, 2007 2:17 AM  By

Jupiter, FL-based BabyUniverse, an online marketer of baby and maternity products, will merge with Denver-based toys merchant eToys Direct. Following the consummation of the all-stock merger, BabyUniverse shareholders will own approximately one third of the shares outstanding of the combined company and eToys shareholders will own about two thirds. The deal is expected to close in the second or third quarter of 2007.

EToys Direct was founded in 2004 when a management buyout led by eToys CEO Michael Wagner and affiliates of the D.E. Shaw group paid $7.4 million in cash and a for the assets of KB Toys, plus a three-year $500,000 per royalty payment to KB Toys, which expired this year.

The board of directors of the combined company will consist of representatives of the D.E. Shaw group and BabyUniverse, as well as new independent appointees. John Textor, chairman/CEO of BabyUniverse, will remain as chairman of the board of the combined company while Michael Wagner will serve as CEO.

Banc of America Securities served as financial advisor to BabyUniverse. Financo Securities, a subsidiary of Financo, served as financial advisor to eToys Direct. The combined company is expected to have $160 million in sales.

EToys, which last year mailed 15 million print catalogs, for the fiscal year ended Feb. 3 generated about $117 million in unaudited net sales. BabyUniverse, which in January 2006 acquired Richmond, VA-based Posh Tots, a multichannel merchant of upscale children’s furnishings, had net sales of $23.7 million for the year ended Dec. 31, 2005, BabyUniverse.

The fulfillment component of the deal is significant in two ways. First, BabyUniverse’s selling season is year–round, compared to eToys, which has a heavy reliance on the fourth quarter. So eToys’ 600,000 sq.-ft. Blairs, VA-based fulfillment center will become that much more efficient with the BabyUniverse business, according to Lee Helman, managing director for Financo. BabyUniverse benefits from the eToys DC as well: because it previously leased a 23,000 sq.-ft. Las Vegas distribution center, it did not have the storage space to go as deep in some product lines, so it lost out on potential sales.

This past January, BabyUniverse launched BabyTV.com, a 24-hour network of programming and information to expectant mothers. BabyTv.com is delivered through an interactive format in which the consumer can tune in to live and prerecorded streaming television, interact through live events, engage in e-commerce transactions, browse links to the Web and participate in Babytv.com’s features.