eUniverse, L90 Scrap Merger

Amid growing questions surrounding L90’s accounting practices and the surprise departure of its two top executives, the Los Angeles-based ad network and Web publisher eUniverse has opted to terminate their $50 million merger agreement.

Details surrounding the scrapped merger are slim. In January, eUniverse agreed to buy L90 in a complex and unusual transaction that would actually have the purchased firm funding much of its own buyout. L90 agreed to pay shareholders between $1.80 and $2 in cash per share, for a total of $44.82 million to $49.8 million. eUniverse, in addition, expected to pay each L90 shareholder about $0.20 per share, or about $5.1 million in total.

But the arrangement came under scrutiny by the U.S. Securities and Exchange Commission (SEC), when federal regulators a month later subpoenaed L90’s past accounting records and at least one member of the company’s board of directors. In part, the investigation centered around the abrupt resignation of L90 vice president of finance Lucrezia Bickerton, shortly after the merger agreement was announced.

Final terms of the merger termination have yet to be finalized. L90 said it would likely pay an undisclosed breakup fee to eUniverse, and that it would continue to consider funding options in the future, including a sale of certain, unspecified assets to eUniverse.

“We believe that based on the preliminary terms we have reached with L90 governing the termination of the merger agreement, coupled with the uncertainty of the conclusion of L90’s pending SEC investigation, it is in the best interest of our shareholders at this time to terminate the existing merger agreement with L90,” said eUniverse chairman and chief executive Brad Greenspan. “Going forward, eUniverse continues to evaluate other strong acquisition opportunities and will also continue to explore the possibility of purchasing selected assets of L90 in the future.”

The news comes accompanied by the unexpected resignation of L90’s CEO and president, John Bohan, and the removal of Tom Sebastian from his position as chief financial officer. Sebastian has been placed on administrative leave, L90 said.

Last week, L90 said board member Mark Roah, who co-founded the firm with Bohan, had resigned citing personal reasons. No replacement was named.

In Bohan’s place, L90’s board of directors said it has appointed Mitchell Cannold, formerly chief operating officer at Space.com, to immediately take over Bohan’s posts and his seat on the board.

Prior to serving at Space.com, Cannold spent over seven years at Sony Corp. as president of Sony New Technologies, the corporation’s new business development unit, and was responsible for leading Sony’s corporate Internet businesses, including Sony Online Ventures and Sony Online Entertainment. Cannold also held senior management positions at NBC, CBS and The Walt Disney Company.

“The L90 board of directors is very pleased that Mr. Cannold has accepted our offer to join the company,” said chairman William Apfelbaum. “Mitchell is a recognized leader with an impressive track record of building and leading successful businesses.”

“I look forward to joining L90’s management team and working at an innovative and motivated company,” Cannold said in a statement. “I recognize the immediate challenges facing L90, but I also see tremendous potential for the company. Cleary, my top priority is to ensure that, as L90 continues its forward momentum, it does so with the best interests of its shareholders in mind.”

L90 also said it had appointed Steven Kantor to the post of vice president of finance. Kantor previously served in senior financial management and accounting positions at Dr. Koop, United Internet Technologies, Inc. and Meghan Matthews.

L90 also said it engaged board member Peter Sealey, a management consultant and former head of Coca-Cola’s global marketing, as an advisor.

Nasdaq halted trading in L90 Monday morning, pending an information request by the exchange. No further details were available.

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