Prime abandons dot-com

Outlets operator fails to spin off Internet subsidiary

'Too late and too little'

Company will incur $13 million loss as deal falls apart

The Internet

April 14, 2000|By Lorraine Mirabella and Amanda Crawford | Lorraine Mirabella and Amanda Crawford,SUN STAFF

After failing to spin off its Internet subsidiary, troubled Prime Retail Inc. said yesterday that it has closed the eOutlets.com operation before it got off the ground.

Prime, the Baltimore-based owner and operator of outlet shopping malls, said it was unable to reach an agreement to transfer the Internet start-up to an investor group of eOutlets.com management and outside investors. The subsidiary had said last week that it would break from Prime, because the parent could no longer fund its operations.

The subsidiary had hoped to launch the first online mall selling brand-name merchandise at discounts this summer.

Prime has seen its shares plunge more than 70 percent this year as lower occupancy rates in its outlet malls and higher interest expenses cut into earnings. Its shares closed yesterday at $1, down 18.75 cents.

Yesterday, Prime said it will incur a nonrecurring loss of about $13 million in the first quarter of this year, related to starting and discontinuing eOutlets.com. Glenn D. Reschke, acting chief executive officer since the resignation of Prime co-founder Abraham Rosenthal in February, said he did not know the details of why the agreement fell apart.

"Ever since the inception, we knew we only could provide a limited amount of funding for eOutlets' effort, and eventually we would need venture capital funding," he said. "Over the last couple of months, as it became time to take it to that next step and we needed capital, it has become exceedingly more difficult to raise venture capital."

William H. Carpenter Jr., a Prime co-founder who became chief executive officer of the online venture last year, could not be reached yesterday. A week ago, he said he was working with a group of investors to raise the estimated $50 million the company would have needed over the year, mostly for marketing the new site.

Reschke said the board of directors decided to discontinue the operation, and it was shut down Wednesday, when employees were notified.

Only a few of the 48 Baltimore-based employees were retained, he said.

"It's part of our effort to discontinue those operations that have been draining much-needed capital from the company," Reschke said. "We needed to make a difficult decision in order to improve the current liquidity."

In the past few months, Prime has lowered expectations for earnings this year, cut payment of its common stock dividend and said it is in technical default on two of its loans because of a loss from operations in the fourth quarter that ended Dec. 31.

The latest announcement came a day after a consulting firm predicted that most retailers that operate entirely on the Internet will be out of business by next year. Forrester Research Inc. said intense competition combined with a sell-off in dot-com stocks will result in a rapid rise in buyouts and bankruptcies in the coming months.

Analysts had previously questioned eOutlets.com's business model.

"They were hoping they could ride the Internet wave and benefit from it, but they were too late and too little," said David M. Fick, an analyst with Legg Mason Wood Walker in Baltimore. "We think this is one more example of this company's mismanagement. They essentially threw away $16.5 million."

Prime's management ignored outlet mall tenants who said they would not participate in the online venture, Fick said.

"This allows them to put this chapter behind them and move forward without the distractions that this entailed," Fick said.

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