Agency.com Finalizes Seneca Buyout

By Erin Joyce

Stockholders of Internet services firm Agency.com voted Wednesday to sell the company’s remaining publicly held stock to Seneca Investments, the holding company set up by advertising giant Omnicom Group Inc. to flatten its interactive agency holdings.

With the two-thirds approval of the $3.35 per share price in place, the New York-based Agency.com becomes one of some 15 e-business investments in Seneca’s privately-held portfolio while Omnicom shakes loose of its stake in struggling interactive services firms.

New York-based Omnicom formed Seneca Investments with private equity firm Pegasus Partners earlier this year, partly as a vehicle to dispose of stakes Omnicom’s Communicade portfolio held in digital services firms such as Agency.com, Razorfish and Organic .

The Pegasus-Seneca arrangement called for Omnicom to contribute a chunk of its investments in the interactive agencies to its Seneca portfolio.

What was unclear at the time, however, was how Omnicom planned to unload those investments. Seneca’s moves to take Agency.com private has provided something of a road map on how it might resolve its stakes in Razorfish and Organic.

In May of this year, Seneca started the process of taking over Agency.com with a cash purchase offer to its founders for $3.00 for each of their shares. The sale by Chan Suh, Kyle Shannon and Ken Trush raised Seneca’s ownership from about 45 percent to 65 percent.

Meantime, Omnicom has also been unloading to a portion of its 17 percent stake in Razorfish throughout the year, a move which contributed an after-tax gain of $63.8 million to Omnicom by the end of the third quarter. In August, Seneca also filed to sell just under one million shares of Razorfish.

Razorfish’s stock price has been hovering in the 20 cent range in recent weeks, about the same range as San Francisco-based Organic. Both face potential delistings from the Nasdaq National Market to over-the-counter bulletin boards and the question over whether they can afford to stay public has lingered around the Alley throughout the year.

Now the speculation has turned to whether a merger of Razorfish and Organic might be next, or whether they too might be taken private.

With Razorfish’s cash starting to dwindle (it had $10 million in the bank by the end of September and third quarter cash needs were about $20 million), the clock is ticking on its options.

In September, Seneca made a bid to acquire Organic shares it doesn’t already own for 33 cents per share, including Organic shares held by a holding company it set up called Cinagro. Once the purchase is voted upon, Seneca would own, either directly or indirectly, about 81 percent of Organic’s common stock.

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