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Priceline WebHouse Club Calls It Quits

Stock in Priceline.com dropped as much as 27 percent in early trading today after its licensee, Priceline WebHouse Club, which let consumers name their own price for gasoline and groceries, said it is "winding down" its operations.

The company's stock tanked last week after it said third quarter revenues would not match analyst estimates. Priceline closed yesterday at $9.375 and was down to $6.68 in the first 40 minutes of trading today. At one time it had traded at more than $104 a share.

WebHouse Club, a separate company and a privately held licensee of Priceline.com, said it would cease operations on an orderly basis over the next 90 days after concluding it is unlikely to reach profitability. WebHouse said it will provide refunds to customers who have yet to redeem their purchases.

Priceline.com itself, which is the target of a consumer fraud investigation by the Connecticut attorney general that includes gasoline sales, said it "intends to focus on its core travel, financial services, telecommunications and auto businesses."

WebHouse Club said that customers with unredeemed gas and groceries would receive a full refund of any prepaid amount, "plus extra money to cover the estimated savings they were expecting to receive at the grocery store and gas pump." Refunds will be processed by Oct. 20, the company said.

The company had arrangements with 7,200 grocery stores and 6,000 gas stations nationwide, including the Winn Dixie grocery chain. Priceline.com said its services are not affected.

WebHouse Club said that management determined "it would be unlikely to raise the substantial capital next year that would be required to complete its business plan and achieve profitability."

The company said that its cash reserves of approximately $50 million, as well as $20 million of additional working capital, would be more than sufficient to satisfy all obligations.

"WebHouse Club was a business opportunity with great potential but with real risks," said founder Jay S. Walker, who is also vice chairman and founder of Priceline.com.

"Specifically, it required a large capital commitment to create a national network of retail gas and grocery stores, broad participation by packaged goods manufacturers and third-party marketing partners, and substantial information technology systems," he said. "We ... structured the WebHouse Club as a separate company from priceline.com so that private investors, not priceline.com shareholders, would bear that risk."

Meanwhile, Priceline.com said it was informed today that Perfect Yardsale Inc., another separate priceline.com licensee that offered used merchandise to consumers on the priceline.com site, has decided to cease operations. Perfect Yardsale, in operation for less than a year, "has a very small base of business," Priceline said.

Priceline.com said it will review its operations in the fourth quarter to remove the costs associated with providing services to WebHouse Club and Perfect Yardsale, for which priceline.com received reimbursement of $4.3 million in the second quarter of 2000. Priceline.com also will cease to receive royalties from these licensees, which totaled $361,000 in the second quarter.

Priceline.com also said in a statement today that it "will intensify its focus on customer and supplier satisfaction" and that it is "revamping its Web site and processes to incorporate both consumer and third-party feedback."