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PSINet buys services firm in bid to be one-stop shop

The Internet access provider says it has agreed to acquire Metamor Worldwide, a computer services and consulting firm, in a stock deal valued at roughly $1.9 billion.

Internet access provider PSINet today said it agreed to acquire Metamor Worldwide, a computer services and consulting firm, in a stock deal valued at roughly $1.9 billion.

With the acquisition of Metamor, PSINet said it hopes to create an Internet business that provides customers with a wide range of outsourcing services, including Net access, Web hosting, application hosting, managed services, Web design and strategy. PSINet said it also will gain from Metamor's large staff of 4,500 employees and growing presence in more than 70 offices.

News of the deal sent Metamor's stock soaring. In morning trading, shares of Metamor advanced $14.31, soaring nearly 90 percent, to $30.31. Meanwhile, PSINet shares lost $8.81, falling about 19 percent, to $40.69.

Bill Stein, a financial analyst at Wasserstein Perella Securities who covers PSINet, called the deal "fabulous."

"This places them in a whole new arena," said Stein. "This really gives them complete outsourcing (capabilities)."

Stein, who has PSINet's stock at a "strong buy" rating, added that PSINet, which primarily offered Web site hosting and Internet access services along the lines of large Web hosters Exodus and Digex, will "now have more than double the customers than Digex and Exodus" with the new deal.

Houston-based Metamor, which reported $577 million in revenue last year, serves Fortune 1000 and midsized businesses that offer their customers services such as package software set-up and integration, application hosting and network integration.

PSINet, which provides companies with Internet access and some Internet hosting services, has recently been heavily investing in its fiber-optic network and service centers to meet growing demand and establish a global position. Last year, the company said it plans to make capital investments of $1.4 billion in the next three years to build on its service offerings and expand operations.

The move comes at a time when most technology providers are aiming to become "full-service providers" or "one-stop shops" to meet all the needs of companies doing business online. A number of software makers, computing giants and Internet service providers have started adding other service offerings, such as Web site management and hosting, partly to attract a wider audience and partly to gain additional revenue.

For example, computing giant Hewlett-Packard is gearing up to launch a number of Web hosting and management services in an effort to target its hardware products and services at growing Web businesses. Several of the traditional services and consulting firms, such as EDS, Andersen Consulting and KPMG, have also extended their services to offer more outsourcing.

Herndon, Va.-based PSINet said the Metamor deal has a $1.9 billion purchase price consisting of approximately 39.9 million shares of its common stock. Each share of Metamor will be exchanged for 0.9 shares of PSINet common stock. The transaction was structured without a collar on the PSINet shares issued to Metamor stockholders, meaning there is no set price per share.

The combination of the two companies also gives PSINet a controlling interest in Metamor's publicly traded subsidiary, Xpedior, an Internet consulting firm that helps companies with their Web strategies, e-commerce branding and design. Chicago-based Xpedior, which went public last October, has inked a number of alliances with major technology players, including Microsoft, IBM, Sun Microsystems and HP. Metamor holds about 83 percent in Xpedior following the subsidiary's initial public offering.

The deal, which is subject to a number of closing conditions and regulatory approval, is still awaiting approval from PSINet and Metamor shareholders and is expected to close by mid-2000.