Scient said Tuesday it has agreed to merge with Atlanta-based iXL and that the two will form a new company to be based in New York operating under the Scient name.
Both companies' boards have approved the merger. Under the terms of the transaction, shares will be issued in the new Scient company, with existing Scient shareholders getting .31 shares of the new company for each share held, while iXL shareholders will get .25 shares.
A dollar amount for the merger was not released during a conference call Tuesday in which the companies also announced quarterly earnings
Just over a year ago, Internet consulting companies grew to huge valuations, feasting on the plentiful number of dot-com companies that required their services.
Now, the Web services market struggles under the weight of a difficult economic climate and a downturn in spending caused by the hundreds of dot-com clients that have gone out of business.
However, both Scient and iXL still provide Web development and e-business services to brick-and-mortar companies like Budget Rent a Car, Chase, The Coca-Cola Company and Delta Air Lines.
Gartner analyst Frances Karamouzis says Scient and iXL are combining more for survival than for growth, and the merger will likely not result in a competitive advantage for the new entity.
iXL said revenue in its fiscal second quarter was $32.7 million, compared with $118.4 million for the same period in 2000. The company reported a loss of $9.8 million, or 10 cents per share, which was less than the loss of 18 cents a share Wall Street had estimated.
Company executives said during the conference call that tough times demanded drastic measures.
"Consolidation must happen," said Bertram Ellis, chairman of iXL. "This is the best move for this economic climate...You just can't keep cutting staff. There is a floor. Together, there is additional possibilities for streamlining."
During the past six months, a number of companies in the Web services industry has had to make significant cuts in their work forces to stay afloat. In March, Scient competitor Viant said it was slashing over 200 jobs.
Consolidation has been happening in the Internet services industry for some time. In March, network software provider Novell acquired Cambridge Technology Partners, which was one of the first consultancies to turn its focus to the Internet.