Webvan puts HomeGrocer in its shopping cart

Online grocery delivery service Webvan Group Inc. went shopping this morning for market share, announcing a deal to buy rival HomeGrocer.com Inc. for stock valued at $1.2 billion as of Friday afternoon.

Foster City, Calif.-based Webvan agreed to swap 138 million shares of its common stock for Kirkland, Wash.-based HomeGrocer. The acquisition will consolidate Webvan's local-delivery operations in San Francisco, Atlanta, Chicago and Sacramento, Calif., with HomeGrocer's business units in Seattle, San Diego, Dallas and Portland, Ore.

The move by Webvan is "an effort to take out its competition and expand its business at the same time," said David Cooperstein, an analyst at Forrester Research Inc. in Cambridge, Mass., who follows online retailers.

Cooperstein said Webvan needs to create a national brand name for itself to compete with established bricks-and-mortar supermarkets that have also begun to enter the online sales business. This could be the first of many similar deals in which regional online grocers look to expand into new markets, he added.

But Wall Street investors greeted news of the deal with skepticism, as the stock of both Webvan and HomeGrocer tumbled more than 13% in early trading this morning. Both stocks are trading in the $7 range, well off the 52-week highs of $34 per share for Webvan and $16.25 per share for HomeGrocer, according to First Call Corp. in Boston.

Cooperstein said the stock drop-offs are consistent with what has happened to other online retail ventures in recent months as funding has dried up for many companies and Internet-based stores in areas such as fashion and toys have gone out of business.

Copyright © 2000 IDG Communications, Inc.

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