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NetRatings, Jupiter Call Off Merger

Web and Internet measurement firms NetRatings, Inc. and Jupiter Media Metrix, have called off their $71.2 million merger agreement after federal trade officials raised competitive objections about the deal.

Shares of Jupiter Media Metrix had dropped by 74 percent to 21 cents on the Nasdaq during Tuesday's morning session in heavy volume, almost twice the norm. Shares of NetRatings were up by about 7 percent to $15.15.

The two companies said the Federal Trade Commission also raised objections about a loan and security agreement the two struck when they announced their acquisition agreement in October of 2001.

After "extensive discussions" between NetRatings and Jupiter, members of the FTC staff said they would recommend that the FTC challenge the loan and security agreement, the companies said. The FTC staff also rejected alternative loan structures proposed by the companies and said it would seek a preliminary injunction to stop the merger if necessary, according to the companies.

An FTC spokesman said the commission would not comment on the case. Calls to both companies were not returned by press time.

The decision to call off the deal comes one month after the two companies announced that a patent-infringement lawsuit Jupiter had filed against NetRatings would go forward. The news set tongues wagging over whether a marriage of the two biggest Web measurement firms would happen without anti-trust objections.

In a statement, David Toth, chief executive officer of NetRatings, and Robert Becker, chief executive officer of Jupiter Media Metrix, said they disagreed with the FTC staff's conclusions regarding the loan and security agreement as well as "the competitive impact of the acquisition."

During a fourth quarter earnings conference call on February 11, Jupiter's Becker said: "Over the last two months, we have had numerous discussions with the FTC regarding the merger, and we have presented our arguments as to why this transaction should not be challenged under the antitrust laws."

"The FTC is clearly examining this transaction very closely and is conducting a thorough investigation. As part of this investigation, the FTC has recently taken a number of depositions of Jupiter Media Metrix employees, and is also speaking with clients, competitors and former employees."

In related news, the Milpitas, Calif.-based NetRatings also announced that it would lay off about 20 employees, or about 15 percent of its base, as part of its plan to "streamline its business and focus on core product areas." The moves include the discontinuation of two products and a reduction in staff.

The two products getting the boot are NetRatings' AdSpectrum and eCommercePulse products, which the company said would save it about between $6 million and $8 million a year. It also said it would take a one-time charge of that amount in order to cover reorganization and layoff charges too.

The decision to mutually terminate the acquisition agreement does not require either company to pay a breakup fee, and each company will bear its own acquisition-related expenses, they said.

At the same time, Jupiter also announced it would press onward in search of another merger partner, saying it had hired investment firm Robertson Stephens, Inc., as an advisor. In a statement, the company said it formed a special committee to "immediately begin exploring strategic options to strengthen its position in the marketplace."

The lawsuit, which resumed in January, had been filed in March of 2001 and stemmed from Alley-based Jupiter's charges that NetRatings violated its patent for tracking online Web usage. (At the same time, Jupiter filed a similar suit against European metrics firm NetValue.) But in October, NetRatings agreed to purchase Jupiter for $71.2 million in cash and stock, which left the lawsuit in question.

Their announcement about resuming the lawsuit also followed the FTC's request for additional information about the acquisitions, which a NetRatings official called typical of merger deals valued at over $50 million.

In addition to the announcement about calling off the merger, NetRatings said it had agreed to purchase the interests of ACNielsen eRatings.com that it does not currently own, which had been a part of the deal with Jupiter.

"At this time, the parties to the eRatings transaction have not determined whether that transaction will proceed and, if it does, whether or not it will be consummated without modification in its terms."

*Information from internetnews.com contributed to this report