SmarterKids.com, Inc. (Nasdaq: SKDS) slipped in early trading Wednesday, dropping 5/32 to 1 13/16 after the online seller of educational toys said it will merge with Earlychildhood.com, a manufacturer and retailer of educational products.
The combined company “anticipates vigorous growth and profitability from the outset,” said SmarterKids.com executive vice president Al Noyes, who will become chief executive after the merger.
Shareholders of each company will receive shares of the new company, with SmarterKids.com holders taking one new-company share for each of their shares, giving them a one-third interest in the new company. There will be about 69.58 million shares outstanding after the combination.
Earlychildhood.com will own a two-thirds interest in the combined venture, which will apply for listing on the Nasdaq. The companies expect to close the deal in the spring.
Together, the two companies had pro forma revenue of about $68 million in 1999. The new company expects to break even before income taxes, depreciation and amortization in 2001.
“We will have superior catalog and online operations, attractive operating margins, and strong, complementary revenue streams in the consumer and school markets,” Noyes said. “In addition, we will have a well-funded business that can continue to grow rapidly without depending on additional investment capital.”
The combination “joins a rapidly growing catalog business with best-of-breed Web expertise,” said Ronald Elliott, Earlychildhood’s chief executive officer and chairman of the new company.
Added Elliott, “SmarterKids fits exceptionally well with the successful catalog distribution and manufacturing business ECC has built, and the company clearly shares our deep commitment to create real educational value.”
Earlychildhood.com, based in Monterey, California, makes and markets educational toys and products for young children through its catalog and field-sales operations. The company mails more than 2.5 million catalogs each year, and sells its wares to some 90,000 early learning centers.
Needham, Massachusetts-based SmarterKids.com launched its Web site two years ago, and has more than 254,000 customers.
Operations will be consolidated at both companies’ headquarters.