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And with one bound Engage is debt free
CMGI cuts cord
Engage, the ad-serving firm, can at last present a credible alternative to Doubleclick, after breaking free from the $40m debt owed to ailing parent CMGI.
CMGI is to return all the equity it holds in Engage to the company and it is cancelling its debt. In return, Engage is paying $2.5m in cash upfront, and $6m in earn-out payments beginning in 2004 and a secured, but interest-free promissory note, due for payment in September 2006. Bargain.
CMGI also has an option to purchase up to 9.9% of the issued and outstanding shares of Engage Common Stock, at an exercise price of 48 cents per share. Engage shares closed on Monday at 48 cents.
As recently as May this year, CMGI wanted to take full ownership of Engage, making an offer of 0.2286 CMGI shares for every outstanding Engage share - c.25 per cent of the business. But the deal collapsed in June, following arguments over strategy between the two camps.
In the past, there have been question marks over the financial viability of Engage. In recent quarter, the company has written off hundreds of millions of dollars in asset impairment, contributing to massive losses. This has hobbled its ability to compete head-to-head with market leader Doubleclick.
With the CMGI debt off its back, Engage can focus entirely on winning new business. And there's lots to be won, from the Doubleclick's huge soft underbelly. (Where do we sign up?)
Once upon a time, CMGI was a mighty dotcom VC-cum- holding company, valued at tens of billions of dollars. At its peak, CMGI shares were $151 each. Now they are around 50 cents. Some of the investments, such as Engage were good business propositions, but worth nothing like the money pumped into them by CMGI, which has lost billions of dollars in recent years.
CMGI is now recasting itself as a player in the logistics software business. As such, Engage is a handicap, making key indices on the balance sheet look worse - return on capital, profitability etc. By cutting the ties with Engage, CMGI removes the company's results from the accounts and can cast itself as a pure-play supply chain business. Also, it can participate in some upside in Engage through the share option. ®
Engage balance sheet, filed with the SEC on June 14, 2002