Dot-com Survivor

Verticalnet sells unit, buys back preferred stock and tries reverse stock split

Malvern, PA  July 2, 2002  Supply chain software provider Verticalnet this week sold off its small and medium business (SMB) unit, bought back $106 million in preferred stock at a steep discount and effected a reverse stock split to avoid delisting on the NASDAQ.

The company said it sold its SMB unit, reportedly a money-losing operation, to Corry Publishing, operator of, for an up-front cash payment of $2.35 million and a four-year performance-based earn-out of $6.5 million, as well as the assumption of certain liabilities.

Verticalnet also announced that it would spend $5 million to buy back preferred stock and associated accrued dividends and warrants with a current face value of $106 million.

Finally, the company's board has approved a 1:10 reverse stock split, effective July 15, in a bid to retain its listing with NASDAQ. Verticalnet's shares closed Monday at $0.15.

This from a company that at the peak of the dot-com frenzy had a market capitalization of around $10 billion but whose name more recently has become associated with the phrase "once high-flying."

Kevin McKay, president and CEO of Verticalnet (and a former CEO at SAP Americas), said the moves would help the company secure its long-term fiscal health while its management team added flexibility to pursue a variety of strategic initiatives.

The steps drew a positive review from at least one technology consultancy. AMR Research, in a research note on Monday, suggested that the moves could help Verticalnet survive the current tech downturn, particularly given what the consultancy feels is a strong product offering, which includes a private trading exchange solution that supports complex supply chain collaboration processes, as well as e-sourcing functionality.

"Users should be grateful that the supplier is working its way out of its current hole," AMR wrote. "Its applications have a great deal of value, mostly from the acquisition of Atlas Commerce."

Nevertheless, AMR suggested that Verticalnet's biggest challenge will be staying viable long enough to let its product line gain some traction. Concludes AMR, "Its recent actions should help."

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