E-tailer BigStar Said to Merge or Be Acquired18 Oct, 2001 By: Joan Villa
In a confused duel of conflicting announcements, former price-cutting video Web site BigStar Entertainment is either being acquired by a shareholder or merging with Athlete.com to create a new entity called Athlete TV.
BigStar c.e.o. David Friedensohn didn't return calls after 12% shareholder Ruben Azrak issued a press release reaffirming his intention to purchase the company in an all-cash offer that would pay stockholders 12 cents per share. The offer was first made on Aug. 21, when BigStar stock traded for less than 7 cents per share on the OTC Bulletin Board. It closed Oct. 16 at 9 cents per share.
Azrak's BS Acquisition Group “remains fully committed to its proposal and would like to complete the transaction as soon as possible,” he says in an Oct. 11 press release. Azrak also did not return phone calls seeking comment.
Friedensohn, however, has signed a letter of intent for BigStar to acquire 100% of outstanding shares of privately held Athlete.com Inc., which he describes as a “youth sports information and instruction network.” The filing with the Securities and Exchange Commission says the stock merger will give BigStar shareholders 40% and shareholders of Athlete.com 60% of the merged company, which will be known as Athlete TV.
The newly combined entity “will build an interactive digital television platform” for developing and producing local and national youth sports shows for digital cable television, digital broadcast television, the Internet and emerging high-speed wireless devices, the filing states.
"This transaction takes advantage of the current convergence between digitally delivered entertainment media and the tremendous consumer interest in sports related activities at all levels in the U.S.," Friedensohn adds in a statement. "The new capital invested into this company, as well as the technologies and content previously developed by both companies, can launch a vigorous new digital media business.”
Friedensohn owns about 16% of BigStar and it was widely known the company was looking to sell all of its assets. On June 30, the company accumulated a deficit of nearly $45 million, according to its quarterly filing with the SEC in August. The next day, on July 1, BigStar suspended its e-tailing business and began referring customers who wanted to order videos to a competing Web site, the filing states.
Although the public filings make Friedensohn's intentions clear, apparently Azrak doesn't plan to give up without a fight.
“The proposed reverse merger is an all-stock transaction with a dot-com company that has no Web site and whose listed telephone number has been disconnected," he charges in his recent statement. "Given the negative conditions in the marketplace as it relates to Internet companies, it is extremely difficult to see how this reverse merger transaction allows shareholders to maximize their current investment in the Company."
BigStar had captured more than 3% of online sales by the end of 1999 by undercutting competitors on price, according to Alexander & Associates' Holiday Market Snapshot for Internet sales. Later, however, the site dropped into relative obscurity and financial hardship as consumers switched to well-known names such as Amazon and Best Buy for online purchases, according to Michael Salerno, analyst at Adams Media Research. After the top two or three sites, sales drop off quickly.
“When you're offering DVDs for a discount, you have to let people know you're there, and once they see your ad, 99 out of 100 ignore it,” he explains. Of those that “click through” to BigStar, “only a small percentage completes the sale.”
The current merger with Athlete.com “sounds like a ‘last gasp' -- an Internet company changing its business plan and trying to stay alive,” Salerno says.