RoweCom Signs Agreement to Acquire NewsEdge
Paula J. Hane
Posted On December 13, 1999
RoweCom Inc., a company known primarily as a purchasing service for journal subscriptions, has announced "the execution of a definitive binding agreement for the acquisition of NewsEdge Corporation," a content company that provides news and current-awareness solutions. Under the terms of the agreement, RoweCom will exchange .26 shares of common stock for each share of NewsEdge stock. Based on RoweCom's closing price on December 6, the transaction is valued at about $227 million. The acquisition is expected to be completed in the first quarter of 2000. The transaction is subject to customary closing conditions, including approval by both RoweCom and NewsEdge stockholders.
The purchase will allow RoweCom to provide customized news from NewsEdge to the corporate clients of RoweCom's Knowledge Store (kStore) service. Conversely, embedded links within NewsEdge stories would provide immediate access to related kStore offerings, which include over 200,000 magazines and journals; 5,300 electronic journals; 4,000 market research reports and 12 million article abstracts and citations from RoweCom's catalog; as well as millions of books via RoweCom partner barnesandnoble.com. NewsEdge stories will also be added to RoweCom's service for libraries, Knowledge Library (kLibrary). Later, the company plans to develop a new, completely integrated platform and interface for the services.
Company representatives stressed the synergies that will develop from the merger, noting that they expect it to take a year to realize the benefits. Don McLagan, NewsEdge's chairman and CEO, said: "Together, RoweCom and NewsEdge solutions will help our clients solve the twin problems of information overload and information overlook. Our clients and shareholders alike will benefit from the synergies created by the combination of our two companies."
"The merger of RoweCom and NewsEdge should create a true industry leader and result in a perfect marriage of content and commerce," said Dr. Richard Rowe, RoweCom's president and CEO. "The corporate need for information is expanding rapidly and is accelerating exponentially. The addition of NewsEdge's news and current-awareness services should greatly enhance the appeal of RoweCom's offerings and will spur the growth of our core knowledge management business while further satisfying the informational needs of our clients." He also called NewsEdge the "missing piece" that would bring people back to the RoweCom site daily, instead of occasionally for subscription renewals.
RoweCom actually did gain substantial content from an acquisition earlier this year. The purchase of the Dawson Information Services Group in October included the Information Quest service, which provides 5,300 full-text journals in the scientific, technical, and medical areas (STM). Rowe indicated that they would now work to integrate these into the NewsEdge delivery technology. The content from NewsEdge adds key business and financial information to their STM content.
Rowe noted that the company focused on three vertical areas, all very knowledge intensive and Internet enabled: corporate, academic, and biomedical. He said that the company would be working to relate content for customers, so that customers would not only receive content-appropriate news, and arrange for subscriptions, but also be notified of related books, conferences, courses, and other information of interest, through vertical portals. McLagan commented that there are many news products available, and if that's all a company does, it won't make it. The goal is to save people's time by offering a wide range of material critical for business functions, he said.
The RoweCom purchase of Dawson followed two other purchases earlier in 1999 of smaller subscription services. The acquisitions are part of a plan for growth that was carefully articulated when RoweCom went public early in 1999. At the time, the company's strategy was to expand market share, deepen content, and increase functionality. The purchase of NewsEdge helps to achieve all of these objectives. Rowe summarized the importance of their decision: "The acquisition would create significant operational benefits for our company. We will expand our client base, create another distribution channel for our core products, introduce new sources of revenue, add content and services that will create significant operating leverage, and enhance our ability to foster sales via increased customization."
Those of us who have watched the wave of mergers and acquisitions in the information industry had expected that the content provider NewsEdge might be the target of another content company, so this announcement involving a commerce company came as a bit of a surprise. Just a year and a half ago, NewsEdge itself was formed from the merger of three former competitors. Since then, the business climate for information providers has been tough, the competition for customers fierce, and news, in particular, has become an almost universally available commodity. Partnerships, mergers, and acquisitions have become a means of survival.
NewsEdge had been struggling of late, both with its bottom line and with its identity. The company began with a business-to-business (B2B) model and then launched into the business-to-consumer market. The NewsEdge Corporation consists of two business units: "Enterprise," which derives its revenues from corporate subscribers; and "Individual.com, Inc.," a free Web-based service for individual business end users, which derives its revenues from advertising and e-commerce. Losses from the Individual.com piece of the business, the consumer side, have been dragging down the company's performance. Last February, Don McLagan had indicated the company was for sale at the right offer—at that time even mentioning a target share price that was far above its actual trading point.
Richard Rowe said that RoweCom is proud of its B2B focus and it has resisted the temptation to get sucked into the consumer side of the information marketplace, one that he feels is not very profitable. Now, NewsEdge and RoweCom say they will pursue over the remainder of the month a number of options for Individual.com, Inc., including the sale of a significant portion or the whole of the company to an investor, or repositioning it to develop channel markets using partnerships with portals and consumer outlets.
The recently announced partnership between NewsEdge and Northern Light (reported in our Oct 4 NewsBreak) will not be affected by the purchase of NewsEdge. Development on the co-branded site powered by Northern Light continues, with the target time for rollout in the first quarter of 2000. Leslie Ray, director of partnership marketing for Northern Light, said that they've only had a short time to absorb the news, but that they are excited by the merger, which should bring additional customers and resources to the partnership.
Based in Westwood, Massachusetts, RoweCom has 725 employees, with offices across the U.S. and around the world. NewsEdge, based in Burlington, Massachusetts, about 20 minutes from Westwood, currently has 400 employees, about 40 of whom are with Individual.com. For now, no layoffs are planned and the NewsEdge employees will remain in their current office for at least 6 months, until the company evaluates integration plans. The top management team at NewsEdge will stay, having received attractive offers with stock options. Cliff Pollan, NewsEdge president and COO, will continue to run the NewsEdge corporate enterprise operation for RoweCom. Don McLagan says he will stay long enough to "push the deal over the goal line." He will serve in an advisory capacity, and then take some time off before deciding what he might do next.
So, despite initial surprise over the suitor for NewsEdge, this could indeed prove to be a perfect marriage. RoweCom has been singularly focused on its objectives and has made a lot of strategic moves that appear to make sense. We hope that the combined company can truly provide their customers with more comprehensive information solutions, without holding them hostage on pricing because there are fewer choices out there.
For more information, visit http://www.rowe.com.