Green Taxi

The Domaining industry learned a new lesson this week with the Toys.com procedures. It is important to understand clearly what happened.

I am not a lawyer, but reading through all of the documents and coverage, below is what I have deduced.

It is also important to realize that we all win with this transaction. The auction process succeeded by producing the most qualified buyer. The Internet improves because the quality product exists at our default destination. We go to the beach and see the ocean that we expected to await us.

Let’s walk through some chronological steps.

• Toys.com merges with eToys.
• Toys.com is used as evidence of successful web business development by WebMagic Ventures in a defense of a domain dispute over Ace.com
• The Parent Company and nine of its subsidiaries (including eToys) file for Chaper 11 bankruptcy.
• Bankruptcy court holds an initial auction of several domains, where Faculty Lounge wins Toys.com with a $1.25m purchase. They are considered the “stalking horse”, a qualified bidder who gets a first look at the domain in return for retribution if it is purchased for a higher price in a secondary “Continued Auction”. Interestingly, Eagle (Toys ‘R’ Us) submitted a $1 million initial bid and $1.1 million final bid in this auction. Faculty Lounge’s entry bid at this auction was only $250k.
• The sale generates much media interest and a bit of outrage at the cheap price it traded for without enough of an indication given to the right buyers.
• The bankruptcy court decides that a Continued Auction will occur and even more interested and qualified buyers appear, such as 1800diapers.com, Toys’R'Us (via Eagle, LLC), Frank Schilling (via Schilling Aviation Corp, not Name Administration), National A-1 Advertising, and Socha. The buyers have to put up an initial bid higher than the previous price (almost all bid $1.35 million) and put forth a deposit of at least 10% of that bid. Some put up much more. National A-1 Advertising deposited $1.5 million and Socha deposited $500k.
• The second auction is won by a $5.1 million bid by Toys ‘R’ Us on February 28th. Faculty Lounge will be paid $153k by eToys (3% of the sale proceeds) for its efforts as a stalking horse bidder, according to my estimations.
• On March 4th 2009 at 1pm EST there will be “a sale hearing to consider the results of the Continued Auction.”

In regards to the bankruptcy proceedings, all of the documents can be found on Omnimgmt.com. It is incredibly interesting to read through the documents of the asset sales.

For instance, it seems to me (again, I’m not a lawyer) that eToys basically set up another side company as the bankruptcy began called Posh Tots LLC, which was owned by a board member of the eToys company and co-founder of PoshTots, Inc. This company purchased the remaining assets of the bankrupt company, outside of the key domain names, for $500k. This includes all of their computers, IP, employees, etc.  So, basically, they are taking the company private for $500k, although they lost their top domains.  The court ruled that the companies were at “arms-length”, but I would question that ruling.  On the other hand, they only became a stalking horse bidder, so others have the right to go in and make a bid for the assets.

In regards to the domain auction, it is important to note that the second and third highest bidders, National A-1 Advertising and Frank Schilling respectively, park a majority of their domains. So, in the future, when navigating to Toys.com, we will end up at store actually selling toys, rather than at an advertisement for that store selling those toys.

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