CMGI to pare venture funds, holdings in profit quest
singapore.cnet.com
By Bloomberg, Singapore.CNET.com
Friday, September 8 2000
MASSACHUSETTS--CMGI Inc, its shares down two-thirds this year, said it will pare its stable of companies and venture funds, as the Internet investment company tries to hasten the day it will generate operating profits.
Andover, Massachusetts-based CMGI will fire an unspecified number of workers; it will cut its majority-owned companies to as few as five from 17, merging some and, for the first time, selling others. CMGI will also forego plans to start an international venture fund with Dallas-based buyout firm Hicks, Muse, Tate & Furst and Hong Kong's Pacific Century Cyberworks Ltd.
"This is a faster path to profitability," David Wetherell, chairman and chief executive, said during a conference call.
CMGI, which first sold shares to the public in January 1994 when it was a direct-marketing company, evolved into a venture capital firm over the past five years and hasn't recorded a quarterly operating profit since July 1995. Its shares plunged this year after a more than 800-fold surge in its first six years.
CMGI fell US$3.50, or 7.5 percent, to US$43.19 in New York trading, its biggest decline in nearly a month.
Venture consolidation
The company will integrate its three US$1 billion venture capital funds--MGI @Ventures IV, CMGI @Ventures B2B and CMGI @Ventures Technology--into a single open-ended "evergreen" fund called CMGI @Ventures IV. Investments will be made on a case-by-case basis and all of the firm's venture executives will have a chance to review each investment, said Peter Mills, co-founder and managing partner with CMGI @Ventures.
"The beauty of the one-fund structure is that CMGI is the only limited partner and we're under no pressure to invest--we're opportunity-driven," said Mills. "Evergreen implies infinite, and I like that number better than US$3 billion."
CMGI has US$450 million in cash and US$1.3 billion in marketable equity securities, said Andrew Hajducky, chief financial officer.
That can carry the company for two years because its venture operations are using US$25 million a month while its operating companies are using US$50 million a month, said Paul Merenbloom, analyst with Prudential Securities. "There's no fire sale going on here," he said.
Still, CMGI's holdings were slammed by the decline in technology stocks. The value of its marketable securities fell $1 billion in the quarter ended April 30, to $1.38 billion.
CMGI's first three venture funds, containing US$55 million, are closed and invested, Mills said. Of the three current funds, now CMGI @Ventures IV, US$247 million has been invested.
CMGI maintains a "great relationship" with Hicks, Muse and Pacific Century, and decided not to move forward with plans for an international fund, announced in March, so each can pursue a "more flexible model for co-investment," he said. CMGI and Hicks, Muse were both investors in Therealm.com, an online real estate business.
Pacific Century
One sticking point in discussions with Pacific Century, said Wetherell, was CMGI's desire to acquire Pacific Century's existing Asian fund. "There was a lot of alignment but there were a few items that were hard to work out," he said. "We were not able to come to terms."
CMGI has invested in 41 companies in its history, including 22 in 1999 and 11 this year, and has often merged its portfolio companies. For example, it may merge Saleslink and UBid, said Wetherell. He declined to discuss companies likely to be sold.
The company has cut an unspecified number of jobs in the past six months though its overall employment has grown to 5,800 from 5,200 during that span. Its job openings have been unchanged in that span at about 800, and Wetherell said some employees who are laid off may be moved into other positions.
Today's announcements are a sign of maturation, not retrenchment, said Prudential's Merenbloom, who has a "strong buy" rating on the stock with a target price of US$155.
'Accidental venture capitalist'
"CMGI has evolved from an accidental venture capitalist to an operating company and that's continuing," he said. "Now they've provided a framework for the future. They're just restocking the pantry."
Starting September 21, financial results will be reported separately for its venture business as well as its five new operating segments: search and portals; infrastructure and enabling technologies; Internet professional services; e-business and fulfillment; and interactive marketing.
Search and portals companies include AltaVista, ICAST and MyWay.com; infrastructure and enabling technologies includes Activate, CMGion, Equilibrium, ExchangePath, NaviPath, NaviSite, Tribal Voice and 1stUp.com; Internet professional services includes CMGI Solutions; interactive marketing includes AdForce, Engage and Yesmail.com, and e-business and fulfillment comprises SalesLink and UBid.
CMGI is likely to have one publicly traded company in each of its five operating sectors, including CMGI Solutions, which is profitable and growing and a "good candidate to go public", Wetherell said. |
