Its stock might have sunk to record lows, but eToys (ETYS) is celebrating a $100 million infusion from three private institutional investors. The cash will come from sale of preferred convertible stock over three years.
EToys CFO Steve Schoch says the deal is good because the company should be able to limit the equity it gives away. If eToys's stock performance improves, the company would be able to sell less stock to receive the funds it needs. "We thought it was a very creative idea," says Schoch. The money should carry eToys into at least the fall of 2001. The company hopes to be profitable by the 2001 holiday season, or early 2002 at the latest.
EToys stock has plunged from a high of $84 in October to $6.25 on Tuesday, and it has hovered around $6 since early May. Schoch, optimistic about his company's prospects, does not consider the preferred convertible-stock deal a risk in the long run. Convertible securities are fixed-income securities issued by a company that allows the holder to exchange that security into a fixed number of shares of common stock.
Because there's no way to predict how eToys' stock will shift, the amount of equity the company will give up in this deal is unknown.
"According to our projections, it gets them close to break-even but not all the way there. It's certainly very close and alleviates the near-term concern," says Lauren Levitan, an analyst at BancBoston Robertson Stephens (dossier) in San Francisco.
In other toy news on Tuesday, Toysrus.com announced a cobranding effort with children's entertainment site Nickelodeon. Nickelodeon saw its toy store effort, RedRocket.com, collapse in May. Now ToysRUs and Nickelodeon plan to link their sites, and ToysRUs will sell Nickelodeon merchandise, like Rugrats. "Connecting the two really connects kids' entertainment and kids' toys," says Brandon McCormick, a spokesman for Toysrus.com. Terms of the deal were not disclosed.
Rounding out the trilogy of leading online toy marketers, KBkids.com (dossier) has asked the Securities and Exchange Commission to withdraw its $210 million IPO, which it had filed in January. In a filing to the SEC, KBkids said, without elaborating, that the withdrawal "is consistent with the public interest and the protection of investors." KBkids did not return calls to comment.
