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Divine acquires some MarchFirst assets

The former venture capital company that is trying to reinvent itself as a software maker says it has agreed to acquire some assets of troubled Net consultancy MarchFirst.

Divine, a former venture capital company trying to reinvent itself as a software maker, said Friday it has agreed to acquire some assets of troubled Net consultancy MarchFirst in a deal valued at up to $120 million.

Divine Chief Executive Andrew "Flip" Filipowski said his company has signed an agreement with MarchFirst and plans to form a new company. Among the assets Divine will acquire are $130 million in receivables, "19 or 20" offices, and application service provider HostOne.

"I'm very confident that the deal will close," Filipowski said in a conference call announcing the deal. "There are still some small items that need to be worked out."

Under the terms of the deal, Divine agreed to pay $10 million in cash and a $60 million note, Filipowski said. An additional payment of $50 million will be made "if cash flow far exceeds our expectations during that period of time," he said.

The deal comes as MarchFirst has laid off workers and is trying to revive its stock price, which dipped to 16 cents before the Nasdaq halted trading in the shares Wednesday pending additional information about the company's condition.

Most of the MarchFirst offices that Divine will acquire were once operated by Whittman-Hart. MarchFirst was the name given to the company created after Whittman-Hart combined with USWeb/CKS.

The new combined company will be known as Divine Whittman-Hart.

Filipowski said he expects the new company to generate $250 million annually and be profitable immediately. Divine will fund operations with the $130 million in MarchFirst receivables.

About 2,100 of MarchFirst's roughly 7,000 employees will be retained by Divine, Filipowski said. He declined to comment about what will happen to the MarchFirst assets his company has not acquired, including the remaining employees.

"We're certainly empathetic to all MarchFirst has gone though the last couple of months or maybe even a year," he said. We understand the toll that's taken on the talented people there."

Web consulting companies have been hit hard by the belt-tightening at companies they service. MarchFirst has been faced with the challenges of shifting its business to fit the sudden changes in spending from clients that need services such as Web development and help with their online strategies.

The company found itself short of cash and battling executive departures. On March 12, the company announced the resignations of Chief Executive Robert Bernard, Chief Operating Officer Thomas Metz and Executive Vice President Joseph Bong.

For Divine, which slashed 42 percent of its work force last November, the deal comes as the company shifts business strategies. The Chicago-based company bought software company SageMaker last February and is trying to become an enterprise software company.

MarchFirst executives informed employees Thursday of mass layoffs, sources told CNET News.com, although exact numbers were not immediately clear. In a news report Tuesday, The New York Times said the company would slash 3,000 jobs, or about half of its work force.

An internal e-mail sent to a select group of MarchFirst employees late Wednesday and obtained by CNET News.com referred to the Divine deal and said the outlook was "not so bright" for those MarchFirst assets not included in the sale.

"MarchFirst will be closing a number of offices and releasing approximately 2,000 people" on Thursday, the e-mail said.

The e-mail also noted that parts of the business that don't get sold will be closed over time, and the MarchFirst parent company "will ultimately be folded." The company does not expect to file bankruptcy in the "immediate future," but did not rule it out altogether, according to the e-mail memo.

News.com's Melanie Austria Farmer contributed to this report.