BabyUniverse customer base and infrastructure to grow up with eToys Direct

In announcing its intent to merge with eToys Direct Inc., BabyUniverse Inc. expects to gain substantial e-commerce and site content resources, says John Textor, BabyUniverse chairman and CEO. “EToys is a well-established Internet brand with revenues, customer relationships and fulfillment infrastructure that are considerably more significant than our own,” he says.

BabyUniverse is a web-only retailer carrying pregnancy, baby, and toddler products and content. BabyUniverse is No. 235 in the Internet Retailer Top 500 Guide.

EToys Direct is expected to mesh well with BabyUniverse’s strategy to combine e-commerce and content expertise in reaching new customers. Textor notes his company is “excited about the alignment of our recently launched new media platform, BabyTV.com, with similar content strategies available through other eToys-owned properties such as Toys.com, Hobbies.com and Birthdays.com.” BabyTV.com offers streaming television programming from industry experts targeting new and expectant parents.

EToys Direct, which logged nearly $117 million in unaudited net sales for the fiscal year ended Feb. 3, 2007, is looking to break free of the confines of holiday shopping, says CEO Michael Wagner. “With more than 600,000 square feet of highly efficient distribution facilities, and a strong seasonal bias, we are eager to realize the synergies that we believe are likely to come with the assumption of the seasonally balanced business of BabyUniverse,” he says.

The combined company would have a solid “e-commerce and e-content model that encompasses a family customer lifecycle from maternity to pre-teen,” Wagner adds. E-retailer eToys Direct, No. 126 in the Internet Retailer Top 500 Guide, sells toys and other youth-related products.

The merger makes plenty of sense, says Chad Doiron, a senior strategist at Kurt Salmon Associates, a consulting firm specializing in strategic planning and marketing. BabyUniverse is a family and baby focused presence, with few if any toys. EToys doesn’t offer parenting advice, but is good at distributing toys. Bringing them together creates an everyday resource for the two customer groups. “Each can drive the other’s traffic,” he says.

Combining products and content is paramount, because the trend toward greater consumer interaction with web sites moves them beyond pure retail and into building long-term relationships, Doiron says. “E-retailers have to become a resource,” he adds

While the two companies would need to integrate back-end e-commerce services to gain operating efficiency, there could be value in maintaining individual web sites post merger, Doiron notes, because each might attract customers with similar, but different, goals.

Both companies’ boards of directors have approved the merger, which is subject to approval by BabyUniverse shareholders and other closing conditions contained in the merger agreement, including that BabyUniverse have no outstanding debt at closing.

On the merger’s completion, BabyUniverse shareholders will own approximately one third of the shares outstanding of the combined company and eToys shareholders will own approximately two thirds. The merger is expected to close in the second or third quarter of 2007, says Jonathan Teaford, executive vice president at BabyUniverse.

Further details, including plans for the combined company’s name and total value of the deal, were not available, Teaford adds. Banc of America Securities LLC served as financial advisor to BabyUniverse. Financo Securities LLC, a wholly owned subsidiary of Financo, Inc., served as financial advisor to eToys Direct.

BabyUniverse web stores include BabyUniverse.com, PoshTots.com, PoshLiving.com and DreamTimeBaby.com, and content sites PoshCravings.com and ePregnancy.com.

EToys Direct owns eToys.com and the My Twinn doll company and its web site MyTwinn.com, and operates KBtoys.com under a licensing agreement.

BabyUniverse’s Georgianne Brown, president, mainstream e-commerce, will speak at the Internet Retailer Conference & Exhibition, June 4-7 in San Jose, in a session titled Blending Video and E-Commerce.