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BabyCenter acquisition delays eToys IPO

The toy merchant's initial public offering was expected to go out this week, but the $150 million deal to buy BabyCenter will hold up the stock offering.

eToys' acquisition yesterday of BabyCenter will delay eToys' IPO, which had been scheduled to go out this week. Based on regulatory filings, BabyCenter shareholders will receive shares valued at more than $150 million.

Under the agreement, eToys, which had filed in February for an initial public offering, will issue shares of its common stock to BabyCenter stockholders, who will own about 15 percent of the combined company when the deal closes by June.

One analyst praised the move.

"If you think of getting customers from cradle to the grave, now eToys has got them from the cradle into training wheels," said Mark Johnson, e-commerce analyst with Jupiter Communications. "Now they just need to add on other pieces to get them for a lifetime."

BabyCenter is a community site geared toward young families.

The acquisition will require eToys to get new documents approved by the Securities and Exchange Commission, according to a spokesman for Goldman Sachs, which is lead manager on the offering

In a regulatory filing earlier this month, eToys said it expected to sell 8.2 million shares 10 to 12 a share, raising more than $82 million for the company. The company will have 101.6 million shares outstanding after the IPO, giving the company a valuation of more than $1 billion if the shares sell for 10.

That means that BabyCenter shareholders will get eToys shares worth at least $152 million at an initial offering price of 10. If the price climbs, as many Internet IPOs have done recently, their shares will be worth even more.

Spokesman for eToys and BabyCenter declined to comment on the deal beyond a sketchy press release issued yesterday, citing the "quiet period" around the IPO.

However, BabyCenter confirmed a published report that it had had less than $5 million in revenues last year, meaning that eToys, which sells toys, games, videos, and software from its Net storefront, is paying more than 30 times BabyCenter's 1998 revenues.

Privately held BabyCenter, launched in October 1997, runs a popular Web site focused on new and expectant parents of young children. It combines content, community chat areas, and the BabyCenter online store, which sells thousands of maternity and baby products and supplies. Its Consumer Health Interactive division, launched in October 1998, develops Internet marketing products for health care firms.

eToys garnered huge visibility this fall when Visa featured the online toy store in a series of TV ads aimed at luring mainstream shoppers onto the Internet.

eToys intends to account for the merger using the purchase method of accounting and intends it to be a tax-free reorganization.

Separately, Wit Capital said this week it will participate in the eToys IPO, offering shares to its online customers.