Rare Medium, Motient Call Off Merger

Citing financial woes, Motient Corp. and Alley incubator-cum-interactive shop Rare Medium are abandoning their plans to merge.

For Reston, Va.-based Motient — which owns and operates an Internet communications satellite network for devices like Research In Motion’s BlackBerry pager — the move comes amid increasing fiscal concerns.

The company said that it would not fund a $20.5 million interest payment, due Monday. To trim costs, the firm said that would cut 25 percent of its staff, and is looking to bring in a financial advisor to help restructure its debt agreements.

Rare, which had previously agreed to a $50 million loan to Motient, will still provide those funds through a deal that has been extended until next Monday.

“Our continuing focus is to achieve break-even operating cash flow by mid- 2002,” said Motient president and chief executive Walter Purnell, Jr. “Even though our core business revenue and subscriber base have continued to rise throughout these difficult economic times, we needed to take all prudent actions necessary to ensure our success in achieving this goal.”

While the news points to major difficulties surrounding Motient’s business — as of its last report, the firm had $5.32 million in cash and marketable securities, and an annual burn rate of about $5.6 million — the canceled deal also conveniently ends confusion and consternation surrounding Rare’s part in the merger.

Through the firms’ complex agreement, valued at around $125 million, Motient would have acquired each share of Rare Medium’s common stock for a combination of cash and stock from XM Satellite Radio Holdings, in which Motient owns an equity stake. That agreement, signed in May, followed Rare’s $50 million short-term loan, which had been secured by a pledge of XM Satellite shares.

The merger was troubled from the onset. For one, industry watchers questioned the wisdom of merging Motient’s satellite and wireless email business with Rare’s interactive services and incubator practices, due to a lack of obvious synergies. (Executives defended the move as a way to merge two forward-looking companies and remove a large chunk of Motient’s debt using Rare’s $50 million loan and cash hoard.)

Holders of Rare Medium’s common stock also had attacked the merger as being unfair. Rare’s chief investors, Apollo Advisors, hold all of Rare’s preferred shares, and would have benefited from the deal by controlling an eventual majority interest in the post-merger company, plus receiving $13 million in cash.

Spokespeople from Rare did not return requests for comment by press time.

At any rate, the news is the latest in the long, strange history of the firm. Five-year-old Rare Medium went public in 1998 through a reverse merger of a publicly traded refrigeration company, ICC Technologies. Following the move, the company went on to invest in a string of startups, including ad network L90 and online promotions firm ePrize.net.

Since then, however, the company’s marketing services, interactive development and incubator business have been thrashed by the economic downturn.

In August, the firm reported some success at stemming costs while revenues continue to fall — posting a $6 million second-quarter pro forma loss, or $0.10 per share, on $8.1 million in revenue. In first quarter, the company reported $13.8 million in revenue and a loss of $11.2 million, or $0.18 per share.

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