In a move long expected by followers of the interactive agency space’s troubles, holding company Seneca Investments proposed Tuesday evening to acquire a majority stake in San Francisco-based i-shop Organic.
Seneca, which already owns a 22.2 percent stake in Organic, is offering $0.33 per share — a penny premium over the average closing price of the stock over the past ten trading days — with the total amount coming to about $24 million.
The holding company also said it would acquire 58.7 percent of Organic’s outstanding shares through a separate agreement with the company’s largest stockholder — a firm called Cinagro that had been set up by Organic’s executives in June to house their majority stake in the i-shop.
While Cinagro’s stake is worth about $14 million as of Tuesday’s close (and $17.2 million at $0.33 per share,) Seneca said it would pay the firm’s owners $5.9 million, with an additional $10 million to come following the meeting of certain conditions, such as Seneca’s successful acquisition of at least 90 percent of Organic stock during the next year.
Seneca also said it would pay Cinagro’s owners further amounts only if there were “substantial improvements” in Organic’s operating results through December 31, 2006.
The news is not unexpected. Seneca first emerged on the scene in April, formed through a partnership between ad agency giant Omnicom
and Greenwich, Conn.-based venture capitalists Pegasus Partners, with the stated purpose of serving as a holding company for Omnicom’s interactive agency investments.
Yet insiders immediately pointed to the likelihood of mergers among some of those firms in which the ad company owned a stake — which, besides Organic, also includes Razofish, Red Sky Interactive and Agency.com.
While Seneca, Omnicom and the various interactive shops have admitted nothing, that scenario now would seem to be underway, as Seneca is already making a play for control of Agency.com. In June, it announced its intention to purchase the outstanding shares of the firm, after concluding a private purchase of shares held by the i-shop’s top executives.
Seneca’s purchase of the remaining 34.3 percent of Agency.com is pending, and will likely be decided in a third-quarter shareholder meeting.
Organic’s founding executives, who are its largest shareholders, also had been signaling their intent to sell for some time. Just as the Agency.com acquisition was announced, Organic’s executives set up Cinagro.
According to an SEC filing at the time, the Organic executives who created Cinagro — chairman Jonathan Nelson, chief executive Michael Hudes, president Gary Hromadko, and vice president of finance Marita Scarfi — said that they were discussing the sale of the stock to “third parties, including other substantial shareholders of [Organic] common stock.”
That means that at least one of Seneca’s terms for an open-market purchase has been met — the condition that owners of more than half of the company’s stock commit to sell.
Yet Seneca is making no assurances that the proposal will succeed. Other terms that must be satisfied include Organic’s making good on promised changes to its headquarters’ office lease, which Seneca said had been earlier agreed to in principle by Organic and its landlord. The firm also must settle any defaulting contracts with clients.
Other specifics of the Seneca offer, and its intentions, are not yet known.
“The proposal will be reviewed by a special committee of Organic’s Board of Directors,” Kingdon said in a brief statement on Tuesday.