January 19, 2001, 12:00 AM

How Much Is That Merger in the Petstore.com Window?

Don Davis

Editor in Chief

E-retail's long-forecast category-by-category consolidation continued today with the announcement that Pets.com will acquire Petstore.com. In connection with the transaction, Pets.com will receive a $3 million cash investment and will issue about 5.8 million shares of its common stock and approximately 850,000 shares of a redeemable non-voting, non-convertible series A preferred stock. Subtracting the $3 million investment from Petstore investors, that puts the value of the deal at about $10.6 million.

Chief among the assets Pets.com stands to benefit from is Petstore.com's equity relationship with Discovery.com, an affiliate of the Animal Planet cable network, both owned by Discovery Communications. Discovery will have a seat on the Pets.com board of directors and will promote Pets.com on its cable networks, which include the Discovery Channel, TLC, Animal Planet, Travel Channel and Discovery Health Channel. In addition, Pets.com will have a one-year exclusive pets e-commerce tenancy on Discovery.com, with the option to extend that arrangement for up to three additional one-year periods.

Pets.com also will inherit a marketing pact with supermarket giant Safeway Inc., under which Safeway will promote Pets.com through in-store programs and other means and Pets.com will carry the Safeway SELECT pet food line on its site.

Under the terms of the transaction, Pets.com will acquire Petstore.com's database of customers and newsletter subscribers, the Petstore.com trademark, trade name and domain name, and Petstore.com's live fish business, Flying Fish Express.

"Joining new, important partners with Pets.com's existing relationships with Amazon.com and GO.com will create a powerful combination that we believe will increase our customer base, brand awareness and revenue growth,'' Julie Wainwright, chairman and CEO of Pets.com said in a statement.

The transaction is expected to close by the end of June, but already this morning, the Petstore.com site was routing visitors to Pets.com.

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