Seneca to Absorb Agency.com

  |  June 26, 2001   |  Comments

The move to take Agency.com private may foreshadow additional M&A activity within the troubled interactive shop sector.

Alley-based interactive shop Agency.com will become a property of holding company Seneca Investments through terms of a merger deal announced Tuesday.

The merger comes out of a complicated effort by ad agency group Omnicom to lessen its losses in the interactive sector, by sharing its stakes in Agency.com and other i-shops with a private equity firm, Pegasus Partners.

Seneca, the product of that joint venture, said in May that it would seek to control a majority of Agency.com through a cash purchase offer of $3.00 for each share of publicly traded Agency.com. At the time, the firm's founders -- Chan Suh, Kyle Shannon and Ken Trush -- agreed to sell their shares to Seneca in a complex transfer arrangement, raising Seneca's ownership of the firm to 65.7 percent from 45.3 percent.

Through Tuesday's arrangement, however, Seneca said it would offer investors $3.35 for each outstanding share -- a premium over the earlier offering, and above the stock's closing price on Tuesday of $2.63 per share.

The merger awaits a two-thirds approval by non-Seneca stockholders, which will likely take place during third quarter in a special shareholders meeting. Once it's finalized, Seneca would control all of Agency.com's shares, effectively taking the firm private.

Spokespeople declined to discuss the specific reasons behind the greater offering, but the increase could very well also represent a concession to angry shareholders. Following May's announcements by Agency.com, investors unleashed a spate of class action lawsuits against the company, charging mismanagement and deception, among other things.

However, Seneca said Tuesday that it has also reached an agreement in principal to settle with the plaintiffs in the suits. Terms were not disclosed of the proposed settlements.

In addition to taking Agency.com private, rumors abound about Seneca merging the company with other interactive shops in which it owns a stake. Through its absorption of Omnicom's interactive holdings, the company owns shares of publicly traded Razorfish and Organic, as well as a host of private firms.

Both Razorfish and Organic appear to be in prime position for M&A action. In recent weeks, Razorfish founders Jeff Dachis and Craig Kanarick stepped down from their posts as chief executive officer and chief strategic officer, respectively. (Each continues to hold the title of co-chairman). Since then, the pair have unloaded large chunks of their personal holdings in the Alley-based firm.

Meanwhile, Organic this week set up a holding company, Cinagro, to hold about 52 million shares in Organic stock owned by the company's founders. The goal of this reorganization, according to an SEC filing earlier this week, is to boost the shares' value "by placing the stock in a corporation with no operating history" and thereby make them more appealing to buyers.

"It is hoped that Cinagro might be a more attractive company for potential investors or potential purchasers," Organic continued in the regulatory filing, adding that its founders (who also represent Cinagro's board of directors) are "currently negotiating terms for the sale of the shares of common stock held by Cinagro to third parties, including other substantial shareholders of common stock. However, no agreement has been reached and there is no guaranty that the transaction being negotiated or any other transaction with investors or purchasers will be consummated."

If a third party -- such as existing shareholder Seneca, which owns about 15 million shares at last count -- makes a play for the founders' stock held in Cingaro, that party would gain about 59.5 percent of Organic's outstanding shares, and close to a majority control over the company's direction.

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