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Compaq Tucks in Proxicom

One week to the day after IBM Corp. nabbed Mainspring, Compaq Computer Corp. Thursday snapped up Reston, Va.-based Proxicom Inc. in a cash deal valued at about $266 million. Houston's Compaq doled out $5.75 per share in the deal and will commence a tender offer for all outstanding Proxicom shares.

Peter Blackmore, executive vice president, Worldwide Sales and Services of Compaq, said the acquisition would give Compaq's $7 billion dollar global services unit a lift.

"The addition of Proxicom will strengthen Compaq's value proposition to customers by supporting our already significant presence in telecommunications and financial services markets, and extending our capabilities in markets including retail, automotive, manufacturing, and media and entertainment," said Blackmore.

Compaq's purchase comes as no surprise; e-consulting is a sector that was once ripe with possibilities and is now ripe for the picking.

Over the last several months, e-consultants AGENCY.COM, marchFIRST, Viant, Scient, Modem Media and Organic have either filed for Chapter 11 bankruptcy, announced layoffs, or issued quarterly earnings warnings.

Indeed, a year ago most of its members were valued at $1 billion or more, according to Chris Nerney, executive editor of the IT Management Channel at internet.com Corp. Today the largest market cap in the Internet Consultants/Designers sector is a mere $350 million -- and shrinking, Nerney said.

IBM's purchase of Mainspring for $80 million in stock came more than a month after a similar tech-giant-buys-consulting-practice deal in which software maker Novell Inc. scooped up Cambridge Technologies Inc. for $255 million in stock.

Cambridge laid off almost 700 people, or 17 percent of its staff, before being picked up by Novell. Mainspring itself announced an unspecified number of layoffs in February. In a gloomy quarterly warning, Proxicom laid off 227 people, or 19 percent of its workforce, on March 23.

In addressing the cost-cutting measures, Proxicom Founder, Chairman and Chief Executive Officer Raul Fernandez said then that "the U.S. economic uncertainty and recent deterioration in the European market caused a number of clients to postpone decisions, delay delivery dates or revisit their spending commitments for critical projects."

Proxicom, in a continuation of the get-bought-or-go-under pattern, will be a wholly-owned subsidiary of Compaq reporting to Jeff Lynn, vice president and general manager, Compaq Global Services. The unit will retain its name.

Any Proxicom shares not acquired by Compaq in the tender offer will be acquired in a second step merger. The board of directors of each company has approved the acquisition and two of Proxicom's largest shareholders, Fernandez and General Atlantic Partners, have agreed to tender their shares into the offer and otherwise support the transaction. The acquisition will be neutral to earnings in the second half of 2001 and accretive in 2002.

Shares of Proxicom closed up 43 cents, or 11 percent, to $4.33 ahead of the announcement. Compaq declined by 79 cents, or 4.4 percent, to close at $17.

The IT Mangement Channel is a property of WSRN.com, an internet.com Corp site.



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