NetRatings To Buy Jupiter Media Metrix, eRatings.com

In a series of developments that will radically alter the online audience measurement landscape, NetRatings said it plans to buy competitors Jupiter Media Metrix and ACNielsen’s eRatings.com.

Through separate transactions, NetRatings will pay about $71.2 million in cash and stock for New York-based Jupiter Media Metrix, and an additional $16.4 million for the 80.1 percent of eRatings that it does not already own.

Through the agreement, Jupiter stockholders may choose to receive either 0.1490 NetRatings shares or $1.95 in cash, in exchange for each share of Jupiter Media Metrix they own. The payout represents a 325 percent premium over Jupiter’s previous closing price of $0.60 per share — though NetRatings said it would pay no more than 50 percent nor less than 30 percent of the total payout in cash.

According to the companies, Jupiter executives and members of its board of directors — who together control about 22 percent of the firm’s stock — have agreed to exchange at least 70 percent of their shares for stock. That stipulation is intended to free up cash for non-insider shareholders, who must approve the transaction.

Based on that agreement, Jupiter’s executives and board members also agreed to vote their shares in favor of the sale, slated to close in 2002.

Pending approval of a majority of Jupiter’s shareholders, the mergers would effectively make Milpitas, Calif.-based NetRatings the largest player in the audience measurement space, in terms of number of clients.

Specifically, NetRatings said its buyout of eRatings from ACNielsen, a unit of Dutch research giant VNU, would help to streamline the two practices services under a single brand. Meanwhile, the Jupiter acquisition is more strategic in nature — giving NetRatings the single largest client roster in the Web audience measurement space, with names like AOL Time Warner, Ford and Procter & Gamble.

“Our long-term vision has always been to offer the industry the broadest and deepest array of Internet research information and analysis to support the marketplace and to help our clients succeed,” said NetRatings chief executive Dave Toth, who will be stepping aside in favor of Bill Pulver, former president of ACNielsen eRatings.com. “We believe that the addition of Jupiter Media Metrix, with its array of products and the resulting extensive operating synergies, will accelerate our ability to reach that goal in a cost-effective way. The acquisition is a logical and major step in our strategy to set a global standard in Internet audience measurement.”

The news comes in advance of NetRatings’ quarterly report on Monday in which the company is expected to post a net loss of about 3 cents per share . Though the companies declined to give guidance in detail , Toth said the Jupiter Media Metrix acquisition is expected to “dramatically” boost the new company’s client base and revenues, which overlapped about 15 percent and 10 percent respectively.

As a result, NetRatings chief financial officer Jack Lazar, who would remain at that position in the new company, said the merged firm would achieve a $100 million revenue run-rate by 2003, and profitability much faster than NetRatings had originally anticipated.

However, that’s only after the merged company takes up to $50 million in restructuring charges, associated in part with $40 million to $45 million in cost reductions in the companies’ panels, data centers, product development, marketing and sales departments. Ostensibly, that entails layoffs.

Indeed, one source close to NetRatings said the firm’s senior management already had been reviewing their headcounts across various divisions prior to the announcement.

“The key to the success of this combination, both financially and organizationally, is to streamline the organization thoughtfully but with due speed,” Toth said during a conference call with analysts.

While the news signifies an important boost to NetRatings’ bottom line, it also has critical ramifications for the online media industry: a Jupiter purchase means that little competition would remain for audience data figures, with upstart comScore Networks being one of the few alternatives to NetRatings in the U.S.

However, NetRatings painted that development in a positive light, calling the moves a “major step” toward establishing a de-facto standard in Internet audience measurement — the lack of which has become a major black eye for panel-based audience trackers. (For instance, Jupiter and NetRatings often report wildly disparate figures for unique visitors to the same sites. Those numbers also often differ significantly from sites’ own internal logfiles, further stoking the controversy.)

In addition to questions surrounding its new dominance in the space, NetRatings’ purchase of Jupiter and eRatings also raises other prickly questions that NetRatings’ executives will have to address. For one thing, NetRatings has agreements with Forrester Research and Gartner for analysis — firms that compete with Jupiter’s own research business.

Yet NetRatings executives waved away that particular problem.

“We think that … we see the Forrester and Gartner relationships continuing,” Toth said, adding that the company’s chief focus is the audience measurement practice, which serve as a “foundation” for the “value-added” consulting services.

“We view ourselves as neutral in this space, and that’s how we continue to push forward,” he said.

One potentially bothersome problem, however, conveniently falls by the wayside as a result of the merger agreements. While the merger process is underway, Jupiter Media Metrix said it would take no further action in its patent infringement suit against NetRatings.

At any rate, the Jupiter sale had been in the works for quite some time, said a source close to the talks — and, regardless, it had been long expected, considering Jupiter’s financial position and clients’ reductions in marketing and research spending.

As part of the proposed merger agreement, NetRatings said it would loan Jupiter up to $25 million, under a deal that will replace a previous letter of credit arrangement between Jupiter and its chairman, Tod Johnson. That loan is likely to be crucial if Jupiter is going to last even long enough to consummate the merger: last quarter, the New York firm posted a $48.2 million net loss — and said it has only about $49.3 remaining in the bank.

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