Amid widespread speculation that its incubator and venture capital arms have basically become lame-duck operations (See previous PEW coverage), Internet services company Rare Medium Group Inc. announced last week that it signed a definitive merger agreement to be acquired by wireless provider Motient Corp.
Pending the approval of both companies? shareholders and various regulatory officials, Motient will acquire 100% of Rare using its own newly issued stock as well as its shares of XM Satellite Radio.
The merger announcement comes just weeks after Rare pledged to loan Motient as much as $50 million, $25 million of which has already been given. The rest is expected to be absorbed by the combined company after the transaction?s anticipated closing during the third quarter of this year. At that time, Motient will also repay approximately $34 million of it outstanding bank obligations.
Under the terms of the agreement, the combined entities will operate under the Motient name, and will be headquartered in Reston, Va., with additional offices in Chicago, New York, Atlanta, Dallas and California. Moreover, Rare Medium?s e-business division will operate as a separate entity under the Motient umbrella.
Each share of Rare?s outstanding common stock will be exchanged for one-tenth of a share of a new class of Motient preferred stock, while each whole share of the new preferred stock will have a liquidation preference of $20 convertible into 6.4 shares of Motient stock.
What is more, the consideration for Rare?s existing preferred stock ? about $0.91 per share ? will include nine million shares of Motient?s XM Satellite Radio stock, plus approximately $13 million in cash.
With a combined payroll of more than 1,000 employees, the newly formed company is expected to generate more than $100 million in shared service revenue. Despite that promising outlook and the merged companies? claim that they will now own and operate the largest wireless data network in the U.S., Rare?s investors don?t seem too enthusiastic about the proposed deal. Following the May 16 announcement, Rare?s stock plunged $0.53 to $1.19, losing 30% of its value after opening at $1.72. In contrast, Motient?s stock rose $0.42 to $1.84, up nearly 16% from its opening price of $1.59. At market close last Thursday, Rare?s stock stood at just $0.94 per share, while Motient finished at $1.87 per share.
Another possible explanation for Rare?s declining stock price could be its rather dismal earnings announcement, also released last week. Although it reported consolidated revenue (net of inter-company eliminations) of $8.6 million and $10.1 million of revenue from its Internet services arm, Rare also posted a net loss of $1.09 per share and a restructuring charge of $0.25 per share, which consists mostly of provisions for closed facilities and related assets and severance.
Contact Robyn Kurdek: Robyn.Kurdek@tfn.com