Egghead.Com To Merge With Onsale

Egghead.com said Wednesday it will merge with competitor Onsale, an Internet computer products retailer and auctioneer, creating a company with $500 million in projected sales this year.

Egghead stock owners will receive 0.565 shares of Onsale for each share of Egghead, valuing the transaction at about $400 million. Egghead, which once employed hundreds here, last month closed the remainder of its Liberty Lake operations, completing the move of its headquarters to Vancouver, Wash.

The combined new company will use the Egghead.com name and Web address, with headquarters in Menlo Park, Calif., the current home of Onsale. The deal is expected to be finalized in October.

Egghead CEO George Orban will be chairman of the new company. Jerry Kaplan, Onsale’s president and chief executive, will be CEO.

Both Egghead and Onsale, which have not been profitable, view the merger as a way to trim administrative costs and pool marketing budgets to build a new company around the better-established Egghead brand name.

However, the auction sites the two companies bring together will operate under the Onsale name.

Citing the cash surplus both companies have, Orban said the new business will continue to keep product prices low as hardware and software retailing on the Internet remains highly competitive as companies battle for market share.

Egghead and Onsale had 3.38 million visitors combined in May, according to Media Metrix, which measures Internet usage. Yet the two companies had only a small percentage of their customer pools overlap, even though they sell virtually the same products, a finding that helped spur merger talks.

In a conference call with analysts, Kaplan said that was a key reason a merger was pursued, because it gives the new company 2.8 million combined customer records.

Kaplan noted financial losses are expected to continue during the near term.

Orban added, “This merger is only a first step in creating a powerhouse for online retailing.” As chairman, he said he will continue to look for other companies to acquire, and he talked of widening the array of products on the Egghead site.

Egghead’s stock fell 31 cents Wednesday, closing at $11.75. Onsale dropped $1.50 to close at $21.