NEW YORK (CNNfn) - In one of the biggest spending plans ever implemented by an Internet business, online grocery merchant Webvan has placed a two-year, $1 billion order with Bechtel Group to build automated warehouses in 26 markets across the United States, the Wall Street Journal reported Friday.
Foster City, Calif.-based Webvan, which was founded two years ago but started shipping groceries to paying members only five weeks ago, will finance its expansion by issuing up to $1 billion in "junk" bonds in the next year and possibly taking the company public, sources familiar with Webvan's strategy told the Journal.
They added that Morgan Stanley Dean Witter & Co. will underwrite a junk-bond offering of between $300 million and $400 million later in the summer, an amount high enough to fund much of the company's expansion over the next year.
Currently Webvan serves just over 10,000 customers in the San Francisco Bay area and soon will open facilities in Atlanta. The company didn't specify which markets it will enter next, but the Journal noted that founder Louis Borders, who also started Borders Books, has said he wants to make Webvan the main online source of groceries in every metropolitan area worthy of a major league sports team.
Though its reach isn't nearly as great as that of older rivals Peapod Inc. (PPOD) of Skokie, Ill., and HomeGrocer.com of Bellevue, Wash., Webvan already has raised more than $100 million in venture capital from CBS Corp. (CBS), Knight Ridder (KRI), Softbank Corp. of Japan, and two of Silicon Valley's biggest venture-capital firms.
The San Francisco-based Bechtel, a developer and manager of capital projects and facilities that include Hong Kong's new airport, intends to duplicate Webvan's Oakland, Calif., facilities. Bechtel Executive Vice President John Carter praised it as "setting a new standard in electronic commerce," the Journal reported.
According to Webvan officials, the highly automated Oakland facility allows the company to save up to 10 percent on costs compared with its online and brick-and-mortar rivals, and they expect the warehouse to become cash-flow profitable in the next year, the paper said, despite the fact that the company provides door-to-door service and tries to compete with traditional supermarket prices.