WHOLEPEOPLE.COM MERGES WITH GAIAM

JON SPRINGER

AUSTIN, Texas -- Whole Foods Market here said last week that it would leave the e-commerce business by merging its WholePeople.com Internet subsidiary with Gaiam, a similar company based in Broomfield, Colo.

The new company, Gaiam.com, will be 50.1% owned by Gaiam and 49.9% owned by Amrion (formerly WholePeople), an 80% owned subsidiary of Whole Foods. The deal, which would flow venture capital for WholePeople into Gaiam, will reduce risk to Whole Foods shareholders and improve the company's stock performance, said John Mackey, chairman and chief executive officer of Whole Foods.

The deal also signals a quick death for WholePeople.com, the "lifestyle portal" launched amid great fanfare last fall. The site, which sold natural products and nutritional supplements, as well as books, travel and other services geared toward healthy lifestyles, was deactivated last week, and 177 employees of WholePeople and Amrion were laid off, Mackey said.

Visitors to the site will be redirected to Gaiam.com.

In a conference call, Mackey said the WholePeople site was "confusing" to consumers and that sales were less than expected. In-store kiosks devoted to promoting WholePeople will be switched to promote Gaiam.com, he added.

"Some people got it, some didn't," Mackey said of the WholePeople concept. "We think that Gaiam is a much stronger Internet brand."

Gaiam, headed by former Whole Foods board member Jirka Rysavy, launched its Web site in 1988 and specializes in content and products for people focused on the environment and health. It operates a 200,000-square-foot warehouse in Cincinnati.

It reported sales of $45.7 million for its fiscal year ended December 31, up 49% from 1998. Income increased 116% to $2.1 million.

Because Gaiam is a profitable company, Whole Foods and its shareholders would be less likely to be impacted by sophisticated accounting arrangement for WholePeople it announced in January.

"Investors were concerned that the start-up losses would ultimately show up," said Jonathan Zeigler, a San Francisco-based managing director for Deutsche Banc Alex. Brown, New York. "Eventually the shield was going to burn up."

Whole Foods stock had struggled ever since the January announcement, Mackey said. News of the merger sparked a one-day gain last Tuesday of $2.19, or 6.2%, to $37.

Scott Van Winkle, an analyst for Boston-based investment bank Adams Harkness & Hill, told SN the deal was a good one for Whole Foods. "You have to pick your partners and they chose well," Van Winkle said. "Gaiam is a very successful, profitable company and they were in the same business."