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DoubleClick Sells European Media Unit

Online ad network and technology giant DoubleClick on Tuesday announced it would sell its money-losing European media unit to German competitor AdLINK, in a complex deal valued at approximately $27 million.

The deal, which comes just one week after the surprise resignation of DoubleClick's Global Media group president Barry Salzman, effectively creates a merger of two of Europe's largest independent Internet media firms.

Executives said the combined firm, operating under the AdLINK brand, would reach more than 50 percent of European Internet users by representing popular sites such as MTV Europe, Expedia, Tamedia and IDG. DoubleClick's Stephane Cordier, formerly vice president of its European media network, will join AdLINK as chief operating officer.

The move also continues DoubleClick's efforts to slim down its reliance on its media business, which has been impacted more severely by the economic downturn than its online ad serving, e-mail marketing and database units.

Under terms of Tuesday's transaction, DoubleClick said it would sell European unit to Montabaur, Germany-based AdLINK Internet Media AG for 30.5 million euros in cash, or $27 million. In return, DoubleClick would get a 15 percent stake in the combined AdLINK, with an option to acquire an additional 21 percent at no additional cost. The deal is slated to close in first quarter of 2002.

The transaction also includes a 10-year agreement in which AdLINK will use DoubleClick's ad-serving DART technology -- dropping Engage's rival ASP service. Additionally, the two companies' arrangement also contains a cross-selling stipulation, which means that each will represent the other's network to local clients.

During a conference call, DoubleClick executives painted the transaction as an unmitigated win for the firm, since its bottom line would see a boost chiefly by eliminating some of its sizable media losses. Chief executive Kevin Ryan said that 70 percent of DoubleClick's losses form media operations had come from its European division, which, he added, served a market that "hasn't developed as quickly, is more fragmented, and is smaller" than in the U.S.

Meanwhile, the transaction also limits DoubleClick's direct exposure to the European online ad market, since AdLINK's performance won't impact the U.S. company's operations. Yet, as a major investor, DoubleClick could realize benefits from its success -- a tactic used earlier in the company's history, during moves to Japan and mainland Asia.

"In many cases ... in Japan, Asia and Europe ... it made more sense for DoubleClick to have investments in these companies and structure it so they don't appear on the balance sheet," Ryan said. "And in this early period, when [AdLINK] is less profitable, we will own less of it, and in the future, when it's more profitable ... we can own more of it."

At the same time, DoubleClick's reduced losses are coupled with a new, long-term DART ad serving contract. Executives declined to specify the contract's terms, including by how much rates were being discounted for AdLINK, but said the agreement makes the German firm its second-largest client in Europe.

"From a DoubleClick perspective, we will enjoy the technology revenues from our DART contract, while eliminating our drain," said acting chief financial officer Bruce Dalziel.

Added Ryan, "We're happy to be taking action on our commitment to profitability in our company." Speaking hypothetically, Ryan also said that had the agreements closed on Tuesday, "we believe DoubleClick would be about breakeven in fourth quarter on a pro forma basis."

Ryan also announced that the company was continuing cost-cutting efforts in its U.S. media division under that group's vice president and general manager, Jeffrey Silverman. According to Ryan, the group will have less than 70 employees by year's end, down from 200 at the beginning of the year.

That news comes just days after Salzman's resignation as head of the company's global media practices. Months earlier, DoubleClick also cut 10 percent of its staff -- chiefly from its Media units -- and reorganized its networks in a move to boost sales. The company also exited the business in Brazil and Australia.

Still, executives waffled about whether the firm would similarly quit the U.S. media business altogether.

"Parts of large Web sites or smaller Web sites need ad sales representation, and if you have critical mass, you can do that," Ryan said. "I think that need is still there." But, he added, "the business has to be profitable, and we have a couple of ways of getting there."

Selling the media business "is ... an option to look at," he said. "We've been approached by people in the past ... and the unit is very successful in the U.S. market. It's running very smoothly, so, in one form or another, the unit as it is right now will be successful. The question is, keep it in-house at breakeven, or spin off or sell in some form?"

At any rate, savings coming from the AdLINK transaction seemed enough to alleviate at least some of the pressure facing DoubleClick's executive team, regarding the fate of its U.S. media operations -- which, the company admits, are still losing money.

"We continue to evaluate strategic objectives for [the domestic] business, but we feel very good about the team and its progress ... and this transaction solves the lion's share of the challenges there," Dalziel said.