Under the terms of the deal, Pets.com will acquire several of Petstore's assets, including its customer database, domain name, trademarks and original content, as well as its live fish business and several strategic supplier agreements.
Pets.com will take over a partnership with Discovery.com, owned by Discovery Communications, that includes an e-commerce deal and cross-promotions through television, print and on the Web.
Pets.com will also receive a $3 million cash investment from previous Petstore investors to cover any incremental costs associated with the transaction. Pets.com will issue about 5.8 million shares of its common stock and about 850,000 shares of a redeemable nonvoting, nonconvertible preferred stock.
Based on Pets.com's closing share price today, the deal is valued at $10.6 million. The shares Pets.com issued are worth $13.6 million minus the $3 million investment.
The deal, which is expected to close by the end of June, comes as the e-commerce market on the whole has been hounded by weak investor interest and bleeding losses.
The online pet market, which includes such competitors as Petsmart.com, Petco-backed Petopia.com and PetPlanet.com, has long been expected to consolidate as the industry faces razor-thin margins and increasing competition--which is exacerbated online through the similarities in the companies' names.
Shares of Pets.com are near their all-time low, hovering around $2.
"By acquiring these key assets and strategic relationships, we expect to reap the benefits of consolidation and thus strengthen our position as the online pet category leader," Julie Wainwright, chief executive of Pets.com, said in a statement.
Pets.com will also form a 2-year strategic marketing relationship with supermarket chain Safeway that will promote Pets.com through Safeway stores. Pets.com will also carry the Safeway brand on its Web site.
Visitors to Petstore's site currently find a referring page to Pets.com that reads: "Petstore.com has teamed up with the leading online pet site, Pets.com, to bring you even better selection, information and service! You can now find us at www.pets.com.
"All orders placed on or before June 13, 2000, will be processed and shipped by Petstore.com," the site says.
In May, PC Data Online reported that Pets.com leads the online pet sales market by ranking fourth among all e-tailers, and that it increased its buyers from 144,000 in April to 355,000 buyers in May.
Discovery.com president Michela English will join the Pets.com board of directors. San Francisco-based Pets.com is backed by Amazon and Go.com, among others.