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RoweCom and NewsEdge Cancel Acquisition Agreement, Announce Strategic Partnership
Posted On March 20, 2000
RoweCom, Inc. ( and NewsEdge Corp. ( jointly announced on March 7 that they have agreed by mutual consent to terminate their acquisition agreement. Under the terms of the merger agreement, which was announced on December 7, 1999, RoweCom would have exchanged .26 shares of common stock for each share of NewsEdge common stock, in a deal that at the time would have been worth about $227 million. Details of the announcement were reported in our December 13, 1999 NewsBreak "RoweCom Signs Agreement to Acquire NewsEdge." The companies have chosen instead to move forward with a partnership, but have not released details of the terms of the deal.

For users, the partnership will provide nearly what was first promised by the proposed acquisition. RoweCom intends to provide customized news from NewsEdge to the corporate clients of RoweCom's Knowledge Store (kStore) service. Conversely, embedded links within NewsEdge stories will provide 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 partners and What is yet to be determined is whether there will be any effort to develop an integrated platform and interface for the services.

The jointly issued press release did not discuss the reasons for the termination decision, but the investment community and analysts' news of the companies for the last 3 months certainly pointed to a number of problems, including sharp declines in stock prices of both companies, NewsEdge shareholder opposition, and company integration issues. Various media outlets reported on the tumultuous 3 months. In January, a financial analyst raised questions about RoweCom's accounting and widened his estimate of the company's fourth-quarter loss. The Dow Jones Business News reported that the analyst also made an error, thus adding to the confusion. In the midst of this, RoweCom hired Paul Burmeister as chief financial officer, but the outlook for the acquisition did not improve.

In RoweCom's Annual Report filed with the SEC March 16, the company stated that, "Since its inception, RoweCom has incurred significant net losses and, as of December 31, 1999, had an accumulated deficit of $29.3 million." In the 3 months following the merger announcement, RoweCom's market value fell more than 50 percent, from a share price over 50 to about 23, while NewsEdge shares dropped from 12 to about 6. NewsEdge shareholders were thus rightly concerned about the value of the deal.

A week after the acquisition was called off, Don McLagan resigned as chairman and CEO of NewsEdge. McLagan had previously planned to stay on in an advisory capacity to see the acquisition deal through. Cliff Pollan, president and chief operating officer, will take over as CEO and will take a seat on the company's board of directors. The company also reported that NewsEdge's board will be restructured, with new board members representing Regan Fund Management, which reportedly owns 25 percent of the shares and had opposed the RoweCom deal.

According to Pollan, the company's strengths in refining and personalizing content for use by individual knowledge workers are already creating demand among Global 5000 corporate extranets, portals, vortals, online publishers, B2B exchanges, and major e-tailers forming online commerce relationships with their customers. "We are taking serious aim at the projected $7 trillion B2B e-commerce market," said Pollan. "Our installed client base and businesses of every kind are going online with a vengeance, and they are all keenly interested in our content as a way to make their sites more transactional. We understand how content enables commerce, and that is going to be a powerful differentiator for us. This push into e-content services and related infrastructure offerings leverages our core strengths and significant presence in the enterprise marketplace, while providing a platform for renewed growth."

Pollan added: "In addition, we have significant financial resources in place to support this effort with over $20 million in cash as reported in our year end 1999 results. Those resources will be supplemented by the $10 million proceeds from the sale of" NewsEdge had announced in late February the sale of the money-losing part of the business to Winstar's

Don McLagan, retiring chairman and CEO, said, "Over the last 12 years, NewsEdge has become the clear leader in news value for business. Now is the time for me to transfer the leadership role to Cliff to take the organization into the enormous new opportunities of the B2B Internet economy."

Paula J. Hane is a freelance writer and editor covering the library and information industries. She was formerly Information Today, Inc.’s news bureau chief and editor of NewsBreaks.

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