PRICELINE FOUNDER FUNDS WEBHOUSE EXPANSION

JON SPRINGER

STAMFORD, Conn. -- Priceline.com founder Jay Walker last week said he would sell a 5% interest in the company to raise funds for Priceline's fast-growing private grocery venture, WebHouse Club.

Liberty Media, Englewood, Colo., and Vulcan Ventures, Bellevue, Wash., said they would purchase 8 million shares of Priceline stock for $190 million. Walker said he would use the after-tax proceeds -- about $125 million -- to fund expansion of the WebHouse service, which allows consumers to bid for prices on groceries and gasoline.

In an interview with SN, Walker said he expected to raise an additional $25 million in this round of financing for WebHouse Club. Most of the proceeds will go toward improving the company's information technology systems, which Walker said are strained under demands of the service's rapid growth.

"We need systems that are 10 times larger than the ones we've got now," Walker said, explaining that WebHouse needs to process transaction logs from more than 5,000 participating grocery stores individually, as well as manage a customer base now exceeding 1.2 million.

Walker said those numbers will increase rapidly as WebHouse service for gasoline begins its nationwide rollout. He added that the grocery service -- thanks largely to a gradual rollout in all Kroger stores this year -- will be available in every major U.S. market by late this year.

"We're shooting for 7 million customers by Thanksgiving," Walker said. "We already have 50,000 gas stations participating. In our first four weeks, our customers purchased 5 million gallons of gas."

Walker's creative method of financing the investment drew a lot of attention. Vulcan Ventures, the technology investor headed by Microsoft founder Paul Allen, and Liberty, the AT&T subsidiary, each bought Priceline for $23.75 per share -- around what it was trading for last week but well below what the company was trading for a few months ago, and presumably at a loss for Walker.

However, Greg Konezny, senior researcher, U.S. Bancorp Piper Jaffray, Minneapolis, told SN the plan makes sense because it allows Walker to finance WebHouse Club without selling his stake in that venture. The investment also comes at a time when business-to-consumer Internet companies are struggling to raise money through the public markets.

"I think it was an interesting way to approach it," Konezny said. "[Walker] was able to use a large investment in Priceline as a tool to finance WebHouse without selling his interest in WebHouse."

The deal with Vulcan and Liberty also calls for Walker to retain voting control of the shares for at least one year, which Walker said, "allows me to raise capital without putting any selling pressure on Priceline stock."