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Soros hikes Bluefly stake
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October 13, 2000: 10:45 a.m. ET
Billionaire investor gains up to $15M in additional equity in online retailer
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NEW YORK (CNNfn) - Internet retailer Bluefly Inc. reeled in a much-needed $5 million cash infusion from a George Soros-led fund Friday that eventually could scale up to $15 million and give the billionaire investor a controlling stake in the company.
The New York-based online vendor of discounted brand-name apparel said it has signed a letter of intent with Soros Private Equity Partners securing $5 million in additional funding in exchange for preferred stock that can be converted into common stock at the rate of $2.34 per share.
In concert with the agreement, Bluefly (BFLY: Research, Estimates) agreed to offer its public shareholders the right to purchase an additional $20 million in common stock at $2.34 per share at a date to be determined. If the company's current shareholders do not purchase the entire $20 million, the Soros fund said it would purchase the difference, up to $10 million.
Additionally, the $15 million in debt financing provided in March by Soros, who until that point controlled roughly 19.7 percent of Bluefly's outstanding equity, also was converted into preferred stock at the rate of $2.34 per share under Friday's agreement.
 Under terms of the deal, Soros will control a minimum of 43 percent of Bluefly's outstanding equity following the transaction, Bluefly CEO Ken Seiff said. That stake will give Soros power to control company board votes and, through the additional preferred stock, obtain veto rights over certain company actions even if current shareholders purchase the entire $20 million in common stock allocated to them, Seiff said.
If Soros invests the additional $10 million, he will own roughly 78 percent of the company's outstanding shares, Seiff said, also giving him voting and equity control over the company.
The investment is somewhat curious in that it comes at a time when investors are rapidly fleeing technology and, in particular, Internet-related stocks. Bluefly has been no exception, tumbling nearly 84 percent from its 52-week high of $16.68 as trading began Friday.
However, Seiff said Soros actually approached his company, which hired U.S. investment bank Credit Suisse First Boston earlier this year to help explore its strategic options, about making the purchase.
"This was their suggestion," Seiff said. "I would never dare speak for their mindset, but they have been watching us work with First Boston . . . and they are very smart investors."
The additional funding comes at a critical time for Bluefly, whose expenses continue to far exceed sales. Through the first six months of this year, Bluefly posted sales of $7.9 million but had expenses of $12.9 million, contributing to a net loss of $11.4 million, or $2.31 per share. As of June 30, the company had only $3.9 million of cash on hand.
Bluefly shares jumped 25 cents to $3.00 in early trading Friday 
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