The proposed merger will consolidate the companies' ad-serving technologies and online advertising networks to create the No. 2 Internet marketing services provider. Under terms of the deal, 24/7 Media will issue about 8.3 million shares of its common stock to Real Media shareholders, worth about $1.9 million based on the company's closing share price of 23 cents Monday.
Real Media is majority owned by Switzerland-based PubliGroupe, a global media services company. Under the agreement, PubliGroupe will extend an undisclosed line of credit to the merged company. After the acquisition, it will own 15 percent of the new company, tentatively named 24/7 Real Media. 24/7 Media has appealed to its shareholders for a reverse stock split so that it can maintain its listing on the Nasdaq Stock Market.
24/7 Media Chief Executive David J. Moore will become CEO of the company. Real Media President and CEO Walter Annasohn will leave his position to pursue other interests but will remain on the board of the merged company.
The deal, effective immediately, comes as both companies struggle to survive in a barren advertising market. 24/7 Media has suffered poor earnings, cut about 400 employees, and shut its European operations. In addition, it has sold some assets, including ad-technology company Sabela and e-mail marketing unit Exactis.com.
Meanwhile, PubliGroupe has been shopping around its majority stake in Real Media in an effort to exit the online media business. Real Media had been in talks with DoubleClick, but an imminent deal was canceled after DoubleClick bought the technology assets of rival L90.
The new company, which will be based in New York, is set to be a one-stop shop of Internet marketing technology and services to publishers and their advertisers. The move runs in contrast to efforts by rivals to focus on either technology or media services.
"Through the acquisition, we end up with a broader, deeper set of solutions that addresses every facet of online marketing for our customer, be it an advertiser or publisher," said Tony Plesner, COO of 24/7 Media, who will remain at his post in the new company.
"Real Media has a fantastic name in the technology, and we've got a powerful name in media. It's a powerful story on both fronts," Plesner said. "Unlike some of our competitors in this space, we believe the merging of media and technology is the right business for us going forward. The balance between the two is where we believe we can earn good revenues at good margins going forward."
The company's services will combine Real Media's OpenAdstream technology for publishers, a traditional online advertising network, permission-based e-mail marketing and search engine optimization.
Analysts agree that a merger may help the companies survive in a cutthroat advertising environment. The deal should combine 24/7 Media's strength in sales and Real Media's strength in ad technology. In September, 24/7 Media hired Gemstar-TV Guide veteran Christopher Manning as senior vice president of national media sales, adding to its team of traditional media executives. Meanwhile, Real Media has had success with online publishers adopting its locally installed OpenAdstream technology.
"You bring together the strong sales skills from (24/7 Media) and the strong branded-media properties from Real Media, and some financial backing, now you've got an organization that has a fighting chance," said Jim Nail, senior analyst at Forrester Research.
"The online ad market is not going to turn around in the short term, so they'll need some support to make it," he said, referring to the lifeline that PubliGroupe is throwing the company.
The combined company hopes to save more than $10 million annually by combining operation costs. In addition, it aims to achieve profitability more quickly by cross-selling services. Plesner said the company wants to reach cash breakeven by the fourth quarter of 2002, based on its current financial position and a loan from PubliGroupe.
The companies have formed a transition team to integrate operations and make recommendations to rename the company. Plesner said the company plans to lay off about 5 percent to 10 percent of the companies' combined staff after the merger. 24/7 Media employs about 200 people, and Real Media employs 340.
Norman Blashka, chief financial officer of Real Media, will become CFO of the combined company. 24/7 Media's Mark Moran will remain as general counsel, and Christopher Wagner will stay on as CEO of European operations.