According to the Official Committee of Unsecured Creditors in the RoweCom case, the filing of the divine bankruptcy has the effect of creating an "automatic stay" of all claims against divine, including the claims asserted by the RoweCom estate. RoweCom had also filed a 14-count lawsuit against its parent company.

The announcement of the divine bankruptcy filing did not come as a surprise. The week previous, divine announced it had engaged Broadview International, LLC as advisors to assist in exploring strategic options, including divestitures or possible bankruptcy. (The "B" word, of course, sent tremors throughout the library and publishing worlds, which had been hoping for a settlement with divine over the RoweCom subscription funds.) divine said it would continue to work with Broadview and would also be assisted with day-to-day operations by Casas, Benjamin & White LLC (CBW), a financial advisory firm that specializes in corporate restructurings.

divine says it has approximately $25 million in unrestricted cash on hand that will tide it over while it explores options. The company has not reported a profit since it went public in 2000. For the first 9 months of 2002, the company's losses totaled $168.9 million. The company was due to report its fourth-quarter and end-of-year 2002 financial results on Feb. 25, but cancelled the release and the conference call.

The company stated that it has received "substantial interest" from some organizations interested in purchasing some or all of divine's operations, as well as a letter of intent from financial investment firm GTCR Golder Rauner, LLC to acquire divine's business in its entirety. Rumor also has it that some internal management groups at divine are making bids to purchase some assets. Any sale of divine's assets would be subject to the bankruptcy court's approval and to an auction process to yield the highest and best offer.

An article in the Chicago Tribune reported that GTCR, "whose founder Bruce Rauner has long-time ties to Divine's CEO, Andrew "Flip" Filipowski, has signed a letter of intent to buy substantially all of Divine's assets for about $50 million." For comparison, RoweCom's lawsuit against divine, also filed with the bankruptcy court, alleged that its parent company had made "fraudulent transfers" of over $73.7 million of RoweCom funds. (See the newsbreak: http://newsbreaks.infotoday.com/nbreader.asp?ArticleID=16764.)

The press release from divine announcing the filing talked of protecting its customers and operating with minimal disruptions, but it's hard to imagine this happening. Word has it that most of divine's technical employees have been let go and many customers have already been working on back-up plans. One Chicago rumor Web site even reported that laid-off employees were seen walking out the door with chairs, printers, and PCs.

A company spokesperson, however, stated that divine still has 1,748 employees worldwide and that 281 remain in the Chicago area. (Other sources indicate this is down from a peak of more than 3,000 total last year, and in Chicago down from 376 in early February and more than 600 at its peak.)

So, what does this mean for the proposed EBSCO acquisition of RoweCom being negotiated through the bankruptcy court? Reasonable conjecture indicates that divine's bankruptcy will probably slow the process considerably, and could, in a worst case scenario, completely destroy the deal.

Consider the ramifications if the bankruptcy court decides to merge the two cases—RoweCom and divine, thereby producing a new creditors' group. Then, a process that many hoped could take 2 months could in fact take 8 months or more. One industry observer commented that, "If that happens, it could introduce people who do not know our industry or understand the importance of moving quickly." And, any secured creditors' of divine's other units would have access to money before the unsecured creditors of RoweCom—the libraries and publishers.

Even if the bankruptcy cases are not merged, RoweCom's creditors are unlikely to see any of their money returned from divine. It's not a rosy—or divine—picture.