CarsDirect to acquire Amazon-backed Greenlight

The companies did not disclose the terms of the deal, saying only that the acquisition would be an all-stock transaction that the companies plan to complete next month. As part of the acquisition, Culver City, Calif.-based CarsDirect will inherit Greenlight's marketing relationship with Amazon.

"With the acquisition of Greenlight.com, we are solidifying and extending our leadership position in the online car-buying business," Bob Brisco, chief executive of CarsDirect, said in a statement.

The acquisition comes after setbacks at both companies. Last month, CarsDirect withdrew its planned initial public offering and Greenlight laid off about 25 percent of its staff.

The two companies will operate under the CarsDirect.com moniker and management team. Greenlight Chief Executive Joel Manby and other Greenlight executives will remain with the company through a transition period but do not have positions with the combined company, Manby said.

"I am specifically staying on in an advisory role," Manby said. "I will not be with the company long term. But I will stay with the company as long as it takes."

Also, as part of the merger, the companies said they would close Greenlight's Livermore, Calif., headquarters. And while CarsDirect is making offers to "key" Greenlight employees, it will lay off an "extensive" portion of Greenlight's 75-person staff.

Although the terms of the deal may look unfavorable for Greenlight, they are in the best interest of the company's investors, Manby said. By adding Greenlight, CarsDirect will become the dominant player among online automobile sellers, Manby said. Greenlight investors will be able to share in that success, he said.

"The best interest of shareholders is to have one clear winner," Manby said. "We could move forward and stay an independent company, but I don't think that would create the most value."

CarsDirect will gain access to not only Greenlight's relationship with Amazon but also to Greenlight's network of affiliated automobile dealers, including Asbury Automotive, the third-largest dealership network in the United States and an investor in Greenlight. Brian Kendrick, Asbury's chief executive, will join CarsDirect's board of directors.

"We're getting a lot of value from the transaction," Brisco said during a conference call.

Venture capital firm Kleiner Perkins Caufield & Byers also had a stake in Greenlight.com and will become an investor in the combined company.

Greenlight's Livermore, Calif., offices are already on the market, according to the Web site of the leasing agent. The landlord said one of the two 19,000-square foot buildings would be available at the end of January, and the other at the end of February.

Greenlight is also selling back some of its office furniture, according to Electrocoat, the company that sold it to them. Electrocoat owner Craig Codding said companies typically sell back workstations when they are getting ready to move, when they are downsizing or going out of business.

A representative for the real estate company, Reynolds and Brown, said they agreed with Greenlight to shorten the terms of its lease on the buildings.

Amazon announced last January that it had taken a 5 percent stake in Livermore, Calif.-based Greenlight. Last August, Amazon launched a store on its site offering new cars through Greenlight.

Several Amazon-backed e-tailers have struggled in recent months. Last year, Amazon-backed companies Pets.com and Living.com closed shop, and HomeGrocer.com, Gear.com and WineShopper.com were bought by rival companies.

Layoffs have hit other Amazon-backed companies such as Webvan, Kozmo.com and Gear.com.

The deal will make CarsDirect "far stronger" than either company was prior to the acquisition, said Chris Denove, who covers online car sales for J.D. Power and Associates. The deal will marry CarsDirect's widely recognized brand with Greenlight's highly prized deals with Amazon and AutoTrader.com, he noted.

But the combined company will still face the same pitfalls that Greenlight and CarsDirect faced individually. Franchise laws often restrict online car sales, leaving companies such as CarsDirect to act as middlemen between consumers and offline dealers. That puts them in a profit crunch, Denove noted, because CarsDirect makes money only when the price a dealer will charge it for a particular car is lower than what consumers will pay.

In a recent survey, CNW Marketing/Research found that car and truck prices posted on the Internet are hundreds to thousands of dollars more than the manufacturers' suggested retail prices. For example, the study found that CarPrices.com's price for a new Lexus LS400 luxury sedan was $2,696 higher than the suggested retail price for offline dealers.

"It is very difficult for an online seller to offer a lower price than a shrewd consumer could obtain if they have the time to negotiate with a dealer face to face," Denove said.

News.com's Rachel Konrad contributed to this report.