Webvan IPO Shoots to Raise $345 Million

Online grocer Webvan Group Inc., announced Friday that it has filed for a $345 million initial stock sale to raise money to build and equip its planned brick-and-mortar distribution centers.

While the Foster City, California-based company didn’t disclose how many shares would be in the IPO, their price range, or other details in its preliminary filing with the Securities and Exchange Commission, they are expected to be outlined in subsequent filings. Goldman, Sachs & Co. will act as the managing underwriter for the offering and the stock will be traded on the Nasdaq Stock Market under the symbol “WBVN.”

Less Labor, Less Overhead

The filing comes only a few months after Webvan began selling groceries in the California cities of San Francisco, Oakland and San Jose — building its Web-based business on the premise that consumers would increasingly seek the convenience of ordering groceries online with same-day delivery.

Last month, Webvan announced a two-year roll out, where the e-marketeer would eventually deliver online ordered groceries in 26 major markets throughout the United States. To show its commitment in capturing its piece of the $500 billion (US$) grocery industry, Webvan placed a $1 billion order with San Francisco, California Bechtel Group Inc. to build automated warehouses slated for different regions. Webvan said each center would be able to handle the volume of 20 supermarkets, with less labor cost and store overhead. This, it added, would allow Webvan’s food prices to be as much as 5 percent less than those of its many brick-and-mortar competitors.

Deep-Pocketed Backers

Webvan is not a business conceived by a novice. Its chief executive, Louis Borders, founded the online grocer in 1998, several decades after he co-founded Borders Books. In addition, Knight-Ridder Co., CBS, Softbank Corp. of Japan and Silicon Valley’s Benchmark Capital and Sequoia Capital have pumped more than $100 million into Webvan’s coffers. Moreover, industry analysts estimate that Webvan’s latest round of venture-capital funding competed in spring, has enabled the company to raise about $700 million.

While this might not have captured the full attention of its brick-and-mortar competitors, it has definitely created a stir among e-commerce analysts.

“I can guarantee you that in two years they’ll be the leading online seller of groceries,” said Ken Cassar, an analyst with Jupiter Communications.

Even though Zona Research estimates that some of Webvan online competitors such as Peapod and NetGrocer are currently bigger and better known, it concurs that Webvan’s “deep-pocketed investors” can afford it to ramp up in a way marginal players can’t. Webvan’s board of directors also includes such e-commerce heavyweights as Christos Cotsaklos, chief executive of E*Trade Group Inc., and Tim Koogle, chief executive office of Yahoo!

Social Obstacle

Zona adds, however, Webvan’s aggressive game plan of replacing the supermarket as a middleman between the producer and the consumer is facing a least one social obstacle. It contends that the community function of buying groceries at local supermarkets — where folks can interact with friends, neighbors and relatives — is sometimes more important than the inconvenience associated with filling up a shopping cart.

But whether this or Wall Street’s recent erratic IPO market will keep potential investors from pumping their money into Webvan’s new offering remains to be seen.