USWeb, CKS Group to merge

USWeb says it will merge with CKS Group to form a new company called Reinvent Communications.

Jeff Pelline Staff Writer, CNET News.com
Jeff Pelline is editor of CNET News.com. Jeff promises to buy a Toyota Prius once hybrid cars are allowed in the carpool lane with solo drivers.
Jeff Pelline
3 min read
USWeb said today that it would merge with CKS Group to form a new company called Reinvent Communications.

The deal is valued at about $350 million as of yesterday, executives said. CKS's stock rose nearly 8 percent on the news, while USWeb's stock fell nearly 15 percent.

The merger raised some initial questions among industry observers about the value and wisdom of the deal, especially considering the highly volatile business that both companies are in.

In a recent regulatory filing, for example, CKS noted that "reductions in marketing expenditures by several of the company's largest clients resulted in a significant decline in the Stock Chart: CKS company's earnings for the fourth quarter of fiscal 1997, which in turn resulted in a 63 percent decline in the market price of the company's Common Stock in a single day."

Analysts said combining the two companies' cultures also will be a challenge. "These are two companies that really never liked one another," said Drew Ianni, analyst in the online advertising group at Jupiter Communications. He also pointed to the challenges that CKS has faced in integrating companies that it already has acquired. In addition, Reinvent Communications will face competition from IBM, EDS, Cambridge Technology Partners, and Andersen Consulting.

Other industry watchers touted the move.

"From a strategic point of view, this makes sense," said Steven Horen, an analyst with NationsBanc Montgomery Securities. "CKS's strength is in proving comprehensive marketing and communications to its clients...but I felt they needed more critical mass on the technology side, so I think this makes sense."

The merger, which is expected to close later this year, will create a new company called Reinvent Communications. And with Stock Chart: US Web this new venture, the combined companies will be able to take a customer from designing its Web-based strategy and site to setting a marketing plan and allowing customers to conduct e-commerce transactions, Horen noted.

"These Web-based points of presence will no longer be discrete endeavors but part of an overall marketing and communications plan," he added.

The deal is expected to close later this year. It calls for all outstanding shares and options of CKS to be exchanged at a ratio of 1.5 shares of USWeb to one share of CKS. The deal is structured to be tax free, the companies said.

"CKS Group and USWeb are building the same kind of companies even though we started from two different points," said CKS chief executive Mark Kvamme in a statement. "Our clients face increasingly complex IT challenges and commoditization of their products and services. Reinvent will be a single partner with the breadth of capabilities and depth of knowledge to tackle these challenges across all points of contact with their customers, business partners, and employees."

Kvamme will become chairman of Reinvent, while USWeb chief executive Joe Firmage will be chief executive.

Both CKS and USWeb have been making acquisitions of their own. In May, CKS bought SiteSpecific, an online marketing and direct response firm, in a deal valued at $6.5 million. In August, USWeb bought Metrix Communications for an undisclosed sum.

CKS's stock has been trading near a 52-week low.