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Soros Rescues Bluefly.com in Takeover Deal

In a complicated takeover deal replete with ifs-and-buts, the Soros Private Equity Partners plans to pump an additional $15 million into Bluefly.com, a struggling Alley apparel and home furnishings retailer.

If the deal meets shareholder approval, the group said it would assume a controlling stake in Bluefly that could be between 48-78 percent. The Soros affiliate is the VC arm of the $10 billion fund headed by legendary hedge fund manager George Soros. It already has a 19 percent stake in Bluefly.

The agreement, which was detailed in a 13D filing with the Securities and Exchange Commission, remains a non-binding letter of approval until Bluefly shareholders give their approval.

Pat Barry, Bluefly's CFO, said the investment fund plans to immediately invest $5 million in preferred stock, convertible into common stock at the rate of $2.34 per share. The company intends to also offer public shareholders the right to purchase up to $20 million of common stock at that price.

If public shareholders buy less than $20 million in common stock, Soros would purchase the difference up to a total of $10 million at $2.34 a share, bringing the total investment to $15 million upon consummation. In that scenario, Soros would gain control of Bluefly's board of directors and would be allowed to elect two representatives to the seven member board. The two directors would each have multiple votes.

If Bluefly's public shareholders buy less than the $20 million in common stock, the Soros group will own much as 78 percent of the company. If public shareholders buy their full $20 million allotment, Soros would own 48 percent of Bluefly.

Barry said he did not envisage any upper level management changes under this deal.

In addition, the $15 million already drawn down by Bluefly under a previous deal would be converted into preferred stock valued at $2.34 a share, Barry explained in an interview with atNewYork.com this morning.

Barry expects the initial $5 million investment to be available within two weeks.

The news could not come at a better time for Bluefly, one of many barely-surviving online Alley retailers. Bluefly has not seen a profitable quarter since its launching in September 1998.

Bluefly lost a total of $2.31 per share in the first two quarters of this year, and a total of $2.79 per share for all of 1999.

Two months ago, with cash running dangerously low, the site retained advisors from Credit Suisse First Boston, to explore what it termed "strategic alternatives." Bluefly said that it was open to a joint venture or partnership or outright sale of the company.

This morning, the company's CFO seemed to be breathing a bit easier: "There was a lot of skepticism in the street about our financial position. I'm crossing my fingers that (today's deal) will be viewed as a positive sign," Barry added.

Bluefly has strategic alliances with America Online, Excite, MSN, Netcenter, Women.com and Yahoo!

Ryan Naraine is assistant editor at AtNewYork.