Interactive merger mania continued Thursday, as Digitas Inc. announced that it acquired Modem Media, Inc. in a stock-for-stock transaction. The acquisition is valued at approximately $200 million.
The Digitas-Modem Media deal represents the third interactive agency merger/acquisition in recent weeks. Aquantive recently added Web services and interactive brand development firm SBI.Razorfish to
its portfolio, and Agency.com scooped up Exile on Seventh. And one of the highest profile pickups on the interactive scene in recent weeks-America Online's $435 million acquisition of Advertising.com.
Under the terms of the merger agreement, all outstanding shares of Modem Media after closing will be exchanged for .70 shares of Digitas common stock. Digitas said it anticipates the transaction
to be accretive to earnings in the first full calendar year following the acquisition.
Marc Particelli, Modem Media's President and CEO, noted in a conference call that, "the merger joins two
long-time complimentary marketing services firms." Particelli said he will remain at the helm of Modem on a short-term basis to facilitate the integration of both companies. Laura Lang will succeed
Particelli as President and CEO of Digitas. Both companies will keep their respective brands and operate separately.
Boston-based Digitas has nearly 1,200 employees worldwide, while Norwalk,
Conn.-based Modem has 270 employees and offices in London and San Francisco. Modem will be led by Martin Reidy, who currently serves as president of Digitas, San Francisco. The Modem offices will be
run by their existing managing directors: Michael de Kare-Silver in London, David Lynch in Norwalk, and Scott Sorokin in San Francisco. The companies expect to merge Digitas' San Francisco and London
offices into the Modem offices in those locations.
Digitas President-CEO David Kenny noted that both companies have several clients that overlap, including Delta Air Lines, General Motors, and
America Online. He said that Digitas and Modem Media will defer to the client in figuring out the best way to utilize the strengths of both companies. He added that the shared relationship will build
the collective entity's critical mass, and enhance its overall database marketing services.
Some industry insiders say that Modem has quietly lost key pieces of business over the last couple of
years, and note that its biggest client, Delta, is on the verge of filing for Chapter 11 bankruptcy protection. Digitas also has Delta business. In acquiring Modem, Digitas gains online media planning
expertise and a strong strong creative resource. The agency is best known for its laser-like focus on direct and interactive marketing practices, customer retention and loyalty methods, database
expertise and return-on-investment metrics.
Asked if the overlapping of clients might present problems, Kenny said. "I don't think so. [Some of them] encouraged us to partner. In many ways, this
is very good news for them." He added that sharing clients will give "us the ability to move more clients up the scale curve," but acknowledged, "the real work is to work out what this means client by
client."
Kenny also noted that the stronger state of the market was a very important factor for the merger. "On a combined basis, what we do for our clients is core [to their marketing
strategies.] It's no longer experimental." In addition to the merger announcement, both companies presented second quarter earnings.
For the second quarter ended June 30, Digitas earnings rose to
$7.6 million from the year-ago period of $2.9 million. Revenue rose to $96 million from $72 million a year earlier. For its part, Modem Media posted less positive second-quarter earnings of $1.8
million, flat with the year-ago $1.7 million. Revenue rose to $15.9 million from the year-earlier $15.3 million.
Digitas' client list includes American Express, AOL, AT&T, Delta, and General
Motors. Modem Media's client list includes AOL, Delta, General Motors, Heineken, Hewlett-Packard, Home Depot, IBM Corp., Kraft Foods, PricewaterhouseCoopers, and Sprint.
Digitas shares closed
down 18 percent, or $1.77, at $8.06, Thursday on the Nasdaq Stock Market. Shares of Modem closed up 25 percent, or $1.09, at $5.39.
Tobi Elkin contributed to this report.