By Rachel Chalmers
The awkwardly-named USWeb/CKS Inc has announced another huge merger, this time a stock-for-stock transaction with Chicago- based professional services company Whittman-Hart Inc. No word yet on a new name; executives say that when the transaction is complete, the entire company will be re-branded, but not before then. The proud parents claimed the merged entity will be largest pure-play internet professional services firm in the world. They reckon its value at around $14bn, but analysts and the market disagreed and shares in both companies fell all day. By close of trading, their combined market cap came to only $6.8bn.
When the merger is complete, USWeb/CKS shareholders will own 57% of the combined firm, with shareholders in Whittman-Hart holding the remaining 43%. Whittman-Hart chair and CEO Robert Bernard will become the CEO and president of the new company, and Whittman-Hart CFO Bert Young will be its CFO. USWeb/CKS president Robert Shaw will be chairman of the board and USWeb/CKS COO Robert Clarkson will be COO. The board of directors will include four from USWeb/CKS, four from Whittman-Hart and one new director. The new entity will be headquartered in Chicago and will maintain the USWeb/CKS offices in San Francisco.
The companies justify their decision to merge on the grounds that traditional differences between their client bases – USWeb/CKS had its strength in dot coms, where Whittman-Hart specialized in brick-and-mortar firms – are becoming irrelevant. The new entity will have an entirely new structure, dedicated to providing services in three areas: strategic, marketing and creative and technological. In practical terms, that appears to mean a renewed focus on managed services and ASP products. The companies want to package as many of these services as they can to sell on a subscription basis.
Drake Johnstone, VP of research with Davenport & Co, and Thomas Rooney of Donaldson Lufkin & Jenrette were the only two analysts to downgrade their ratings on the companies’ shares. Plenty of others questioned the logic behind the merger, however, pointing out that while Whittman-Hart has been a solid, if unspectacular, stock market performer, USWeb/CKS has grown by acquisition and its shares have had a rocky ride. If you had asked me to put two companies together and given me 10 chances I wouldn’t have come up with this combination, Friedman Billings Ramsey analyst Rich Leggett told Reuters. This deal just blindsided Wall Street. I’ve talked to a number of investors and they’re scratching their heads.
In a conference call announcing the transaction, USWeb/CKS’s Shaw was defensive. Everything will move to the right stock price as soon as the news sinks in, he told listeners. Whittman-Hart’s Bernard agreed: This is not going to be the proverbial charm bracelet merger, he said. We’re going to integrate the two companies, and smartly. Fighting words, but they were not enough to stop the companies’ share prices in their downward slide.
