Company will use proceeds to fund growth
Barnes &Noble hopes to raise approximately $100 million when it spins off 20% of barnesandnoble.com in a forthcoming public offering, the bookstore chain reported in its registration statement filed with the Securities &Exchange Commission late last month. The filing did not include how many barnesandnoble.com shares will be issued or at what price.
The proceeds from the offering will be used to offset the online bookseller's anticipated operating losses as well as to help fund its growth plans. Among the initiatives barnesandnoble.com expects to implement in order to build its customer base will be to expand the editorial content of its book database to include book covers, title synopsis, book reviews and excerpts, as well as exclusive editorial content. In addition, the company has entered into agreements that will increase its strategic alliances with Lycos and AOL. Under its agreement with Lycos, barnesandnoble.com will pay an annual fee of $4.5 million through 2000, plus a percentage of Lycos-generated sales exceeding $4.5 million. In its AOL alliance, the company has agreed to pay AOL $40 million through 2001. As of August 1, barnesandnoble.com had paid AOL $7 million, and it will pay $3.5 million for the balance of the fiscal year. In fiscal 1999, barnesandnoble.com will pay AOL $7.5 million, followed by $11 million in 2000 and 2001.
Other initiatives include broadening its affiliate program, which currently has more than 25,000 members and is adding about 400 new ones weekly. The company also expects to add complementary products to its book offerings, including magazines, software, music and videos. In addition, the company believes its technology puts it in a good position to serve as a delivery mechanism to download content, such as electronic books. (B&N is an investor in the Rocket eBook electronic book product.)
The online bookseller also expects to continue leveraging its relationship with B&N. In fiscal 1997, B&N accounted for approximately 34.8% of barnesandnoble.com's purchases and 56.8% of its purchases in the first half of the current fiscal year. The company expects to source most of its merchandise through B&N in the future, which will give it access to more than 650,000 titles in B&N's warehouses. To increase its brand awareness, barnesandnoble. com spent $29.4 million on sales and marketing in the first half of the year and intends to continue to spend heavily on sales and marketing both in the U.S. and abroad. In the first half of fiscal 1998, international sales represented only 11% of sales.
Its ambitious plans notwithstanding, barnesandnoble.com has an accumulated deficit of nearly $31 million, and the company said it anticipates losses for the foreseeable future. As of September 1, the company had 423 employees.According to the prospectus, B&N has invested $67.5 million in the online bookseller, a debt that will be converted to a capital contribution. B&N will also contribute an additional $100 million to barnesandnoble.com; following this, the two companies intend to enter into an agreement whereby B&N will make a $100 million revolving credit facility available to barnesandnoble.com.
