Update: [email protected] Pays $425 Million for iMall

Underlying [email protected]'s planned $425 million purchase of iMall Inc. is a strategy to move further up the e-commerce revenue chain by hosting online merchants and setting up their cyberstores rather than merely providing Internet access.

“This is squarely on the mark for that,” [email protected] president George Bell said of the purchase, which was announced this week. “This is a bull's-eye acquisition for that piece.”

iMall, Santa Monica, CA, sets up merchants with electronic storefronts and operates shopping portals featuring its customers. The agreement combines [email protected]'s consumer traffic and iMall's commerce services.

A separate agreement by [email protected] will give the company access to the back-end payment services of First Data Corp.'s Merchant Services unit. Since November, First Data and iMall have jointly offered a package designed to put retailers online.

Portal and Internet service provider [email protected], Redwood City, CA, plans to market the First Data/iMall package through @Work, its business-to-business unit. The division sells Net access to businesses; the @Home unit bundles access for residences and consumers.

“One of the exposed flanks that we had in the @Work strategy was a shortfall on our ability to host and supply e-commerce applications for merchants,” Bell said. “We did not see a way to achieve that sort of integration without owning [iMall] outright.”

Executives said [email protected] ruled out partnerships as a way to put retailers on the Web simply because they wanted full ownership of the enterprise. Don Hutchison, senior vice president and general manager of the @Work division, said the revenue potential in building and serving merchant stores is “too good to want only a taste.”

Picking up iMall also gave [email protected] an inroad to First Data. The Atlanta company is the leading U.S. processor of credit and debit card transactions, working for 2 million merchant clients. [email protected] plans to sell the e-commerce service to that customer base. In turn, First Data wants to steer some of [email protected]'s Web traffic toward its merchants. The pact buttresses First Data's standing on the Web as it tries to process a bigger chunk of the exploding number of credit card transactions in cyberspace.

“Some analysts predict that retail sales online could reach $35 billion by the year 2002. Who knows? I don't know. One thing's for sure — this is going to be big,” said First Data chairman/CEO Ric Duques.

The two companies arranged a preferred marketing agreement to cross-promote other products and services in the future.

Under the terms of the acquisition, [email protected] will issue 8.3 million shares and will assume iMall's outstanding options and warrants. A group of shareholders that includes iMall CEO Richard Rosenblatt already have agreed to vote in favor of the transaction. The group's combined holdings account for more than 40 percent of iMall's outstanding stock.

Executives said iMall will continue to operate as an independent unit of [email protected]

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