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EBSCO’s Takeover of RoweCom Continues
by
Posted On March 10, 2003
Though its bankrupt parent divine reportedly now faces the possibility of criminal charges stemming from a federal grand jury investigation, RoweCom continues to move toward an acquisition by EBSCO. On March 6, EBSCO announced the execution of definitive agreements for the purchase of RoweCom, Inc. and its U.S. operations, as well as RoweCom Australia Pty, Ltd. RoweCom's U.S. operations include Dawson, Dawson Information Quest, Faxon Co., Turner Subscription Agency, McGregor Subscription Service, and Corporate Subscription Services.

EBSCO has already acquired RoweCom's European assets. In late February, EBSCO Industries sent letters to the approximately 25,000 publishers that had business dealings with RoweCom outlining the terms of participation in bankruptcy claims. Letters also went out from EBSCO to U.S. library customers in order to solicit their compliance in the plan. Letters to Australian RoweCom customers will be sent soon.

According to EBSCO, the final acquisition depends on three factors: 1) U.S. Bankruptcy Court approval, which is expected by early April, 2) the successful closure by EBSCO of its RoweCom Europe acquisition, which is expected to receive French regulatory approval and closure by late March, and 3) the support of publishers, representing at least 50 percent of the aggregate monetary amount paid to RoweCom by customers—monies not forwarded by RoweCom to publishers on the customers' behalf. EBSCO predicts it should reach the 50-percent quota before the end of March.

Under the arrangement EBSCO is proposing to publishers and libraries, publishers agree to fulfill subscriptions to their titles for which a RoweCom customer paid RoweCom, but for which the publisher did not receive payment. In exchange for agreeing to send the issues, publishers will receive the equivalent of the RoweCom customer's claim on the bankrupt RoweCom estate to the extent of the value of the subscriptions they agree to fulfill. Library creditors will agree to assign their claim against RoweCom to participating publishers. These creditors will retain the claim against RoweCom for publishers that are not participating in the agreement. Los Angeles-based Kurtzman Carson Consultants, LLC is handling the agreements for EBSCO. The letters to publishers and libraries have a requested return date of March 15.

Responses from publishers and customers will be cross-matched to identify the specific publications that go to specific customers, with details on the results going to both publishers and library customers. RoweCom's customer service staff will handle the process. (For more details, go to the RoweCom Web site at http://www.faxon.com or the Kurtzman Web site at http://www.kccllc.net/rowecom.)

When divine, Inc. filed for bankruptcy on Feb. 25, RoweCom creditors and interested parties feared that the court might merge the bankruptcies of the parent and subsidiary, thus slowing down and seriously hampering any recovery. However, this has not occurred. On March 4, the Chicago Tribune reported that a federal grand jury has begun a criminal investigation of divine operations, specifically of the $65 million in payments that RoweCom collected from libraries and did not pay publishers.

Randall Samborn, spokesperson for the U.S. Attorney for the Northern District of Illinois, would neither confirm nor deny the federal grand jury investigation, asserting that the process is secret. However, the Tribune reported that libraries began receiving federal subpoenas for records in February. A second Tribune report said that divine had admitted the U.S. Attorney's office asked for documents, a request with which it asserted it would comply fully. The company claimed it was "confident that the documents and facts will reveal that divine did not engage in any inappropriate activity."

A civil fraud suit filed by RoweCom against divine is still pending. (See Paula J. Hane's NewsBreak "RoweCom Files for Bankruptcy, Then Sues divine for Fraud" at http://newsbreaks.infotoday.com/nbreader.asp?ArticleID=16764.) In addition, rumors circulate that the state attorney generals for Illinois and Massachusetts may also consider criminal charges against divine.

In a separate action, NASDAQ delisted divine's company shares because they no longer meet its listing requirements.


Barbara Quint was senior editor of Online Searcher, co-editor of The Information Advisor’s Guide to Internet Research, and a columnist for Information Today.


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