Fry's Buys Outpost.com

Fry's Electronics said Friday it has agreed to buy electronics e-tailer Outpost.com (Nasdaq: COOL) in a deal that includes an immediate US$13 million loan.

The all-cash deal values Outpost shares at 25 cents each, for a total of about $8 million. Including the cash loan, the deal is worth about $21 million.

Sunnyvale, California-based Fry's said the agreement will take effect as soon as a loan made to Outpost by would-be merger partner PC Connection is repaid. That payback is expected to take place Tuesday.

According to Forrester Research analyst Christopher Kelley, Fry's goal in making the deal is gaining access to Outpost's customer database, as was the case in Fry's recent agreement to acquire the now-bankrupt Egghead.com.

Names in the Game

"This shows the power and value of customer information," Kelley told the E-Commerce Times. "Yes, they get the technology and the expertise of the people already working there. But what they're really after, especially in a slow economy, is the customer dollars."

Fry's standing bid for Egghead includes a provision that if a certain number of customers opt out of having their data transferred to Fry's control, the deal will be called off. A similar clause is likely to be part of the Outpost deal, depending on the details of Outpost's Internet privacy policy.

Outpost, which was founded in 1995, says it has about 1.4 million customers worldwide and that its site draws 4 million visitors each month.

Closing In

Kent, Connecticut-based Outpost said it will continue to operate independently from Fry's after the acquisition closes in the fourth quarter. Outpost chief executive officer Darryl Peck is expected to remain with the company.

For Fry's, which is privately held, the Outpost pick-up is the second takeover of a pure play e-tailer in as many months. Fry's $10 million agreement to buy the assets of now-bankrupt software pure play Egghead.com was signed in August and now awaits bankruptcy court clearance.

Privacy Frontier

When it comes to the transfer of online customer data, several Web sites have faced fire from privacy advocates and federal regulators.

Privacy concerns made news early on during the e-commerce shakeout, as the customer lists of Toysmart.com and other e-tailers became the focus of court battles. Since then, most online retailers have refined their privacy policies regarding the transfer of e-shopper data.

"It really raises some interesting privacy issues," Kelley said. "And if too many customers say they don't want their information handed over, that casts doubt on the value of the deal."

Late Entry

Fry's revealed last week that it had joined the bidding for the struggling Outpost, which has been facing declining sales and a shrinking supply of cash.

The announcement came days after Outpost and PC Connection revealed that their merger plans had hit a snag. PC Connection said it would not waive a condition of the agreement requiring that Outpost meet a minimum value level.

The PC Connection takeover would have been worth as much as $25 million, according to documents filed with the U.S. Securities and Exchange Commission (SEC).