Deal-Hungry Fingerhut Announces Two More

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Catalog giant Fingerhut agreed last week to acquire another cataloger and invest in another Internet firm, marking its third acquisition and third Internet investment since July.


Bedford Fair Industries Inc., Greenwich, CT, markets through two catalogs: Bedford Fair Lifestyles and Willow Ridge. The cataloger, which Fingerhut acquired for around $39 million in cash, filed for Chapter 11 bankruptcy reorganization last year and has telemarketing and distribution operations in Wilmington, NC. Fingerhut doesn't plan to lay off any of Bedford Fair's 500 employees, said Michael Sherman, executive vice president at Fingerhut, Minnetonka, MN.


"Our plan is to first restore it to profitability," he said. "We have enormous synergies that we bring from Fingerhut in terms of data and credit infrastructure [and] synergies of scale."


The acquisition brings 1 million customers to Fingerhut. Its other recent acquisitions are membership cataloger Popular Club Plan, which it purchased last month, and Arizona Mail Order, which it acquired in August. Bedford Fair will operate under Arizona Mail Order.


Meanwhile, Fingerhut said it will buy a 19.9 percent stake in Internet lead-generation firm FreeShop International Inc., Seattle. The move is part of a strategy to buy pieces of Internet companies, grow them and take them public. FreeShop (www.freeshop.com) is an online storefront that generates leads -- at a fee of from 40 cents up to $60 -- through more than 1,000 client-sponsored product offers, such as free trial subscriptions. Visitors to the site then are invited to opt in to receive offer-laden e-mail newsletters by joining Club FreeShop.


FreeShop said the site receives more than 750,000 visits a month and has taken more than 3.6 million online orders since it launched in 1994. Club FreeShop said it has 460,000 members. FreeShop sends e-mail to club members twice a week, which results in more than 25,000 orders a month, or about 25 percent of its order volume, said Freeshop president/CEO Tim Choate, who added that more than 40 percent of its orders come from repeat customers.


"That's right about where we'd like it to be," he said, "because we want people to come back, but we're also at a rapid growth pace and that means we need a lot of new customers."


Besides an obvious place to generate catalog requests, a clear understanding of direct response and a database of DM-responsive consumers were two of FreeShop's most attractive attributes, said Fingerhut president William J. Lansing. Also, FreeShop has found through surveys that two-thirds of its members have made purchases online.


"There's a clear fit there," he said. "Obviously, there's a lot of product we can move through FreeShop with us doing the back end. We've got 65,000 SKUs that we can introduce to the FreeShop site."


To help craft targeted offers to FreeShop's members, Fingerhut will enhance FreeShop's customer data with information from Fingerhut's database.


"We suspect that a fair number of their customers are in our database -- not all, but plenty of them," Lansing said. Fingerhut has 5 million customers (with the addition of Bedford Fair's 1 million) and 31 million people in its files.


Fingerhut expects its customers to respond well to FreeShop offers.


"[FreeShop] is building a value proposition around free trials, free samples and free promotions," he said. "Certainly 'free' plays well with our customer base."


Under terms of its agreement, Fingerhut can increase its stake in FreeShop to 40 percent. The cataloger plans to take FreeShop public next year, "market permitting," said Lansing, who would not disclose financial terms of the deal.


Earlier this month, Fingerhut said it had acquired 19.9 percent interest in The Zone Network, parent company of mountain sports site MountainZone.com. Fingerhut has the right to increase its stake in The Zone Network, Seattle, to a majority interest. Financial terms of the deal were not disclosed. In July, it acquired a minority stake in Internet merchant PC Flowers & Gifts.


The investments are part of an aggressive, multifaceted Internet strategy, which included relaunching the flagship site at www.fingerhut.com, and shopping its back-end capabilities -- order processing, customer service and telemarketing -- to other Internet merchants. Fingerhut said it has struck back-end fulfillment deals with 10 unnamed merchants so far.


As for other Internet investments, Lansing said, "the pipeline is full."
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