Wireless software firm Motient is set to merge with New York-based incubator/venture firm/interactive agency Rare Medium in a deal estimated at between $125 million and $130 million.
The companies said the merger would create an outfit that owns and operates the largest wireless data network in the United States, complemented by a broad range of wireless and e-business products.
The complex merger announcement comes just a month after Rare Medium provided the Reston, Va.-based Motient with a $50 million short-term loan, which was secured by a pledge of shares of stock of XM Satellite Radio Holdings Inc. held by Motient.
The combined firm will maintain headquarters in Reston, Virginia and would have a workforce of approximately 1,000.
Not only is Motient using some of the proceeds from the Rare Medium loan for the acquisition, it is also poised to acquire the cash on Rare’s balance sheet, listed at $157 million as of the end of last year.
The agreement calls for Motient to acquire Rare Medium Group’s common stock in exchange for one-tenth of a share of a new class of Motient preferred stock. If the preferred shares trade at a price of $3.125 or above over a 10-day stretch, the shares would immediately convert into Motient common stock, the companies said.
Both companies’ stock prices have been hovering between one and two dollars in recent weeks. So in addition to helping them find new opportunities in wireless consulting services, the merger could bump their share prices out of de-listing territory (if their price were to dip below a dollar).
The companies said the merger includes nine million of Motient’s XM Satellite Radio shares, as well as about $13 million in cash. In addition, half of its $50 million loan to Motient is expected to be absorbed by the combined company when the transaction closes, which is expected in the third quarter.
When that happens, Motient is expected to repay approximately $34 million of its outstanding bank obligations.
The new company plans to offer strategic and technological consulting, Web development, integration and all kinds of wireless services to corporate customers. It will also maintain offices in New York, Chicago, Atlanta, Dallas, and California. Once the combination is complete, the new company is projecting service revenues in excess of $100 million.
Glenn Meyers, Rare Medium Group’s chairman and CEO and Walter Purnell, Jr., Motient’s president and CEO chimed in on the deal in a joint statement: “We are very excited about the possibilities created by the merger of our two companies. The market for extension of Internet and corporate network applications across a robust nationwide wireless network is gaining momentum.”
Purnell also said the combination would help Motient address its funding needs and add more services to its menu. By leveraging some of Motient’s XM Satellite Radio shares and Rare Medium’s balance sheet, he continued, the combined company will be in a better position to finance its business plan and help it reach cash-flow break-even in about a year.
Beyond salvaging the stock prices, however, Alley observers questioned whether the merger would offer the synergies the companies are touting, given that its venture investing arm and early-stage incubator division were a major part of the company’s focus.
The company has long been criticized over whether its main focus is that of a professional services firm or a venture investing firm, both of which have been hammered by the collapse in dot-com type services and by a near-shuttered IPO market for new economy issues.
At very least, the merger appears to be the next evolution for Rare Medium, which originated in a reverse merger of a former air conditioner company.
Shares of Rare had slipped about 51 cents, or 30 percent, to $1.21 and Motient’s shares were up by about 43 cents, or 30 percent, to $1.85 in mid-morning trading on the Nasdaq.
