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E-Commerce Consolidation Continues

Pets.com Tuesday moved to consolidate its position in the struggling e-commerce pet products arena.

The company acquired key assets and strategic partnerships of Petstore.com for about $11.9 million in stock and 850,000 shares of a redeemable non-voting, non-convertible series A preferred stock.

In addition to the preferred shares, Pets.com will exchange 5.8 million common shares. The transaction is expected to close by the end of June.

Pets.com said the acquisition of assets and partnerships will allow it to extend its leadership in the online pet category without accelerating its cash needs.

The assets include Petstore.com's complete database of customers and newsletter subscribers; the Petstore.com trademark, trade name and domain name; Flying Fish Express, its live fish business; its strategic supplier agreements; and a strategic, equity relationship with Discovery.com Inc., owned by Discovery Communications Inc.

Contingent on Pets.com's acquisition of Petstore.com's assets, Discovery Communications will take invest $3 million in cash in Pets.com. The agreement includes offline media promotion of Pets.com on the Discovery family of television networks, which include Discovery Channel, TLC, Animal Planet, Travel Channel and Discovery Health Channel. Pets.com will also have a one-year exclusive, integrated pets e-commerce tenancy on Discovery.com and will have the option to obtain up to three additional one-year periods of exclusivity. Discovery.com will provide links from relevant content to the Pets.com site for four years. In addition, Michela English, Discovery.com's president and chief operating officer, will join Pets.com's board of directors.

"We are very excited about working with our new partner Pets.com, and believe that this transaction with Petstore.com will further secure Pets.com's strong position in the pets e-commerce space," English said.

Pets.com is also forming a 24-month strategic marketing relationship with Safeway Inc. that is contingent on the acquisition of Petstore.com's assets. Under the agreement, Safeway will promote Pets.com through in-store programs and other means and Pets.com will carry the Safeway SELECT pet food line on its Web site.

Pets.com's stock price was down 2.9 percent in late morning trading.