Global Sports To Buy

E-commerce service provider Global Sports (Nasdaq: GSPT) continued its expanding ways Friday by announcing its intent to purchase perhaps the leading name in pure-play online luxury sales, (Nasdaq: ASFD).

The acquisition is arguably the first of any significance in the e-commerce world since Tuesday’s terrorist attacks on the United States.

“Certainly, I think all of us are deeply saddened by the tragedy,” Global Sports chairman and chief executive officer Michael Rubin told the E-Commerce Times. “We were pretty far into the process. We actually debated when we could make the announcement. Because of the legal parameters we live within, we had no choice but to disclose today. But the deal was basically completed around the time the tragedy occurred.”

Expected to close by early 2002, pending approval by Ashford shareholders, the deal is valued at US$14.2 million, Global Sports said. If the transaction goes through, Ashford shareholders will receive 0.0076 shares of Global Sports stock and 12.5 U.S. cents for each share of Ashford stock.

Global Sports spokesperson Patricia Henderson told the E-Commerce Times that everyone at Ashford is guaranteed employment until February 1st. Between now and then, Henderson said, “the entire management” team will work out who will stay on, and at what positions.

Eyeing Other Categories

Rubin said that Global Sports has been looking to expand in two ways: either by using its platform to sell inventory that it owns, or by operating other companies’ e-commerce sites and collecting fees.

“Our company was particularly interested in the jewelry category,” Rubin said. “We see [it] as particularly similar to the sporting goods category.”

Rubin noted that sales of luxury goods bring in $50 million in domestic revenue annually, similar to sales of sporting goods. The two sectors offer high gross margins, inexpensive fulfillment costs and are also “highly fragmented,” according to Rubin.

“There’s no absolute giant within the category,” Rubin said.

Pushing for Profits

In making the announcement, Global Sports said that the purchase of Ashford will boost Global Sports’ 2002 sales and pro forma earnings past current analyst expectations.

The company said it expects net revenue to surpass $200 million, compared to the previously expected $185 million, and raised its profit expectations from $10 million to $11 million.

Global Sports added that it expects to have more than $100 million in cash and cash equivalents as of the end of this year.

Dimming Jewel?

In August, Houston, Texas-based Ashford announced that its loss for the quarter ended June 30th had narrowed, thanks to cost reductions and lower marketing spending, but that sales had fallen as well.

Ashford reported a net loss of $14.4 million, or 28 cents per share, compared with a loss of $39.1 million, or 87 cents, in the year-earlier quarter. Latest-quarter results included restructuring and other charges of $8.4 million.

On August 21st, Ashford stock fell to a 52-week low of 6 cents per share. Facing delisting from the Nasdaq, Ashford announced a week later that shareholders had approved a one-for-10 reverse stock split, which was to be implemented on October 15th. Ashford went public in September 1999 at $13 per share.

“I am extremely proud of our people and the company’s accomplishments in successfully building a leadership position in the online luxury goods and corporate gift categories,” Ashford CEO David Gow said. “We believe will provide an incredible platform for Global Sports to implement its unique business model to operate multiple Web sites within our categories.”

Wind at its Back

On the same day that Ashford stock hit its low, Global Sports reached a 52-week high of $19.88. However, Global Sports stock subsequently fell to $16.51 before Nasdaq trading was suspended in the face of Tuesday’s tragedies.

The stock hit its high mark on the day that the company made its first expansion beyond the sporting goods world, taking on the operation of, the online arm of retail giant Kmart (NYSE: KM).

As part of the deal, Global Sports was to take charge of order fulfillment and customer service, as well as provide and maintain the technology running the site, while Kmart would continue to be responsible for marketing.

King of Prussia, Pennsylvania-based Global Sports has not stopped making athletics-related deals. On September 5th, the company announced an agreement with football’s San Diego Chargers to develop and operate an e-commerce store.

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