CMGI Divests Engage Stake

Think of CMGI and Engage as the New England Patriots and erstwhile quarterback Drew Bledsoe.

During the go-go ’90s, the Internet operating company couldn’t be happier with the results the online ad firm produced. Accordingly, it invested millions in the star
roster player, eventually gobbling up a 76 percent stake.

But when the IT market imploded, the strain crept in at 100 Brickstone Plaza in Andover, Mass., — headquarters for both firms. By late June, it reached a head, as
CMGI pulled its offer to buy Engage, forcing Engage to scramble for “other sources of financing.”

In addition to scuttling the deal, David S. Wetherell and George A. McMillan, CMGI’s chairman and CEO respectively, resigned their seats on Engage’s board of directors, post-haste.

Given that backdrop, today’s news is unsurprising as Kordell Stewart throwing an interception.

CMGI is divesting its equity ownership stake in Engage and canceling $60 million in debt. In exchange, Engage will pay CMGI $2.5 million in cash, and up to an additional $6 million in secured notes and earn-out payments.

“We are implementing a new business strategy for CMGI that includes investing in specific core areas, as well as restructuring or divesting of any underperforming and non-strategic assets,” said George McMillan, CMGI CEO.

The IT slump, and in particular the Internet advertising drought, has hobbled the companies, both of which have endured layoffs during the last two years.

For CMGI, which nurtured many a startup during the dot-com boom, cutting Engage loose is the most recent step in simplifying its once-tangled corporate structure
and mission.

Going forward, it will be more selective, running a few companies that provide tangible products or services in growing markets. For example, its $41 million purchase of supply chain software maker iLogistix in July. (iLogistix as Tom Brady?)

Other portfolio companies include Web and application host NaviSite, search engine AltaVista and online auction technology provider uBid.

In addition, the one-time Nasdaq star continues to tighten its belt. It bailed out of 15-year,
$114 million naming rights deal in 2000, before Brady had thrown the first touchdown pass in the shiny new stadium.

Engage also used the CMGI break to do its own house-cleaning. John Barone has been named president and COO, and Lisa
McAlister, has been tapped as CFO and treasurer.

“Engage believes its improved financial position, resulting from the elimination of essentially all of its debt, and appointment of a new leadership team strongly
positions the company for growth,” the company said in a statement.

Most recently, Barone was senior vice president of sales and marketing at Engage. He takes over for interim boss Christopher Cuddy who will leave the company.

Now the rift is complete and Engage has to hope that it can make the most of change, like Bledsoe has in Buffalo.

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