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Wall Street shuns USWeb, Whittman-Hart merger

Shares of both companies dip following news of their nearly $6 billion deal, as investors question the alliance between a low-key back-office computer consulting firm and its flashier Web marketing counterpart.

A merger announced today between consulting firms USWeb/CKS and Whittman-Hart is getting the cold shoulder from Wall Street.

Shares of both companies dipped following news of their nearly $6 billion deal today, as investors question the alliance between a low-key back-office computer consulting firm and its flashier Web marketing counterpart.

The market clearly shrugged off today's union, sending computer consulting company Whittman-Hart's stock plunging 28 percent to 57 a share, and Web site builder and marketing company USWeb's shares down 8 percent to 46.81. Donaldson Lufkin & Jenrette analyst Thomas Rooney nipped his rating on Whittman-Hart's shares to "market perform" from "buy," while J.C. Bradford analyst Gary Dean dropped his recommendation to "buy" from "strong buy."

Under terms of the deal, USWeb/CKS shareholders will receive approximately 86 Whittman-Hart shares for each 100 shares of USWeb/CKS shares that they own.

Today's merger comes amid a scrambling of unions among consulting firms that are bulking up to bid for big contracts as companies rush to build e-commerce strategies.

USWeb/CKS chief executive Robert Shaw said he's confident that attitudes toward the deal will improve once the companies explain its benefits to investors and analysts.

"Any time there's an unknown it takes a bit of time to explain the value proposition in detail," said Shaw.

Shaw called the deal, under which USWeb shareholders will own 57 percent of the combined company, a "merger of equals."

The company will be renamed and rebranded, he said. Rather than target mid-tier companies, Shaw said the combined firms will sell services to a mix of start-ups, big-brand firms and brick and mortar companies looking to transform their businesses online.

USWeb brings Internet savvy to Whittman-Hart, analysts say. In turn, Whittman-Hart will bring USWeb valuable back-end integration skills, management expertise and a nationally established business.

But Tom Rodenhauser, an industry analyst who heads, questioned whether USWeb/CKS, which is still working to complete its acquisition of Mitchell Madison, is moving too fast.

"It's like putting together all these pieces, similar to a jigsaw puzzle and betting the pieces fit," he said. "Most of these deals don't work because the pieces don't fit."

The new company, which will have about 8,000 people, will be based in Chicago and there will be executive offices in San Francisco. The company will be led by Whittman chairman Robert Bernard, who will serve as CEO, and USWeb's Shaw, who will be board chairman.

The deal is expected to close by the end of the first quarter of next year. No layoffs are expected, the companies said.

To date, USWeb/CKS, which had $229 million in 1998 revenues, has acquired nearly 40 smaller companies. Ironically, it was USWeb/CKS that was acquired in today's deal, which was worth about $5.88 billion in stock, and brought the combined companies' market worth to about $14 billion.

"I think [the deal] makes a lot of sense," said Dirk Godsey, a financial analyst at Hambrecht & Quist who follows both companies. Godsey speculated that both companies' stocks are down because investors dislike the uncertainty that comes with mergers.

"They add a risk element in terms of execution that may not have been there before," he said, noting that shareholders from each company don't cross-invest and may know little about the other company.

Analysts added that Whittman-Hart's profile couldn't be more different from USWeb's. Whittman's history is steeped in so-called back-office work, such as billing and accounting, for mid-size companies.

With $308 million in revenues in 1998, a reputation for clean balance sheets and high-margin work, and a strategy to build the company by hiring and not through acquisitions, Whittman competes with companies including Sapient and Cambridge Technology Partners.

"For [Whittman] shareholders the story is going to be a lot different going forward," said Legg Mason financial analyst Bill Loomis, who notes that controversy has surrounded USWeb's stock. That controversy has been caused by the dozen or so companies that have gone public since USWeb, a pioneer in the Web services space.

"They never got credit for the accomplishments they've made over past year," Godsey said. "USWeb is one of the biggest, fastest-growing companies in the Internet professional services space and they weren't valued in that way."

On its end, USWeb targets Fortune 1000 firms, building their Web sites and helping execute branding and marketing initiatives. The company boasts high-profile consumer-focused customers such as Harley-Davidson, Levi Strauss, Apple Computer and Williams Sonoma.

Christopher Lockhead, chief marketing officer at Web services company Scient, said the merger is a good one, if Whittman-Hart continues to compete in the mid-tier market, where it has achieved its success.

"The reason they've been so successful is that most of the Big Five [consulting firms] don't compete in the [mid-size] market," he said. "They picked a pretty good niche and they've been smart over the years."'s Melanie Austria Farmer contributed to this report.