DELiA*s Regains Home Turf

Straight out of an episode of VH1’s Where Are They Now, investors
are still wondering the same thing about last year’s high-flying who’s-who
of e-tailing. One flavor of the month that particularly caught exuberant
investors’ attention was the Gen-Y hyperbole. And whatever did happen to
those pimple-popping chic fashion retailers anyhow? Like any wretched case
of acne, they eventually went away and ended up just another phase that
pre-pubescent retail investors outgrew.

One of the more peculiar wedding invites in the M&A patch came across my
desk yesterday when teeny-bopper apparel Web site dELiA*s unveiled plans to do the two-step with iTurf in an $86 million merger deal. If you’re wondering why both
companies have the same chairman and CEO, both hail from Silicon Alley, and
both target the same demographic, it’s because dELiA*s saddled the investing public with
its iTurf online subsidiary back in
April of last year. The parent once had ambitious plans to unlock its
dot-com value from the spin-off and pocket some fast-cash. This must be
Plan B.

Looking back at the froth preceding iTurf’s timely debut, I think investors
would agree that we all had a little too much to drink at the office
Christmas party that year. The newcomer first doubled its price range from
a reasonable $10-$12 to a brow-raising $22, while bumping its number of
shares from 3.7 to 4.2 million. Instead of raising $40 million, the
start-up effectively walked away with nearly $100 million in its war chest.

DELiA*s had its grubby hands in the cookie jar too. With a majority
interest in the IPO, its own stock suddenly sprouted legs, nearly scoring a
double-bagger for short-term speculators in roughly three weeks before
deflating like a wet paper bag in the months following. But, that’s not the
half of it. Late last year, with both parent and sibling taking slow stony
grave steps toward penny stock-ville, dELiA*s, and its CEO Steve Kahn,
wasted little time milking the cash cow, selling a combined $30 million in
iTurf insider stock.

Neither dELiA*s nor iTurf has recovered since, and both look like two peas
in a pod at $3 a pop. Even upstart brokerage house Wit Capital discontinued
coverage of iTurf two weeks ago after the company’s market cap slipped
beneath the radar. In hindsight, iTurf’s IPO served as a high-limit charge
card for dELiA*s, drawing a steady paycheck straight from its subsidiary’s
IPO windfall until the money finally dried up.

Now that the credit card has maxed out, this move looks like an effort to
consolidate costs and combine the books. dELiA*s still loses big bucks on
iTurf even today, and bringing the spin-off in-house may cut some fat by
decreasing overlap and trimming its necessary workforce. It’s readily
apparent that dELiA*s execs realize that iTurf won’t be laying anymore
golden eggs as an out-of-favor, plain vanilla, money-losing niche e-tailer.
But, you can bet if there were anymore pocket change between the cushions,
we wouldn’t be talking about this merger.

Any questions or comments, love letters or hate mail? As always, feel
free to forward them to [email protected].

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