iXL, Scient Shareholders OK Merger

As expected, shareholders of interactive shops iXL Enterprises and Scient Corp. have voted in favor of the two rivals’ merger, which will see iXL become a subsidiary of the new, New York-based company.

iXL’s shareholders, during a special meeting on Wednesday, voted 65.1 percent of the company’s shares in favor of the merger. That same day, Scient shareholders voted 59.5 percent of its shares in favor of the merger.

Based on the terms of the agreement, iXL shareholders are to receive a share of common stock in the new company for each share of iXL that they own. Scient shareholders, meanwhile, will receive 1.24 shares of the new company’s stock for each share of Scient they owned.

The merger, likely to become effective following the close of business on Wednesday, brings together two players in the troubled interactive services space in a bid to outlast the current dearth of demand for their offerings.

Although iXL brings in more revenue ($21.1 million in last quarter, as opposed to Scient’s $11.6 million), posts a smaller per-share loss ($0.21 per share; versus $0.26 per share) and at press time, had a greater market cap ($28.1 million versus $26.5 million), the Atlanta-based firm was driven to ally with Scient because of its cash crunch.

As of the end of September, iXL revealed that it had just $9.2 million in cash and marketable securities remaining — representing a $16.5 million quarterly burn rate.

Scient, meanwhile, comes to the table with $87.9 million in cash, restricted cash and marketable securities — allowing the merged company a bit of breathing room. Yet, Scient, too, has a sizable burn rate of its own — $27 million a quarter.

Obviously, stemming the merged firm’s hemorraging of cash is critical for the company’s new management, which will likely consist chiefly of Scient executives. (In August, iXL chief financial officer Michael Casey — who was to become CFO of the merged firm — resigned to pursue other interests. Scient CFO Michael Hand is filling in until a replacement can be found.)

iXL chief executive Christopher Formant has said that the combined company will save more than $100 million annually, and would deliver positive earnings before one-time charges by the first quarter of next year.

Even before the merger’s completion, both companies launched efforts to cut costs, significantly paring their staffing levels such that the new company will employ about 830 — down from what would have been about 3,000 last year.

Whether the combined company will be able to cost-cut its way into profitability remains questionable, however, since the market for interactive shops’ services has suffered greatly during the past 12 months. For example, Scient’s most recent quarterly revenues were down 89 percent from last year; iXL’s about 76 percent lower.

At any rate, Scient and iXL aren’t the only two former rivals now closely aligned. Seneca Investments, an entity partially funded by ad agency holding company Omnicom recently merged Red Sky Interactive with Agency.com, which it took private on Oct. 31.

Seneca also has announced similar plans to buy out publicly-traded Organic. As of yet, however, Seneca and Omnicom have remained tight-lipped about whether Organic and Agency would be merged.

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