|Divine wooing buyers for units|
Sales would help in a bankruptcy
By Barbara Rose
Tribune staff reporter
February 18, 2003
Divine Inc. is contacting potential buyers for its software and services businesses in an 11th-hour scramble to raise cash and also strengthen its position in a possible bankruptcy filing, according to sources familiar with the discussions.
A Divine spokeswoman said Monday that the company does not comment on speculation.
Divine's stock has plummeted on rumors that the company can't survive its latest cash crisis, including claims by a bankrupt subsidiary, RoweCom Inc., that Divine owes the business a total of $74 million.
Divine's stock fell by about 50 percent last week to close at 35 cents per share Friday. The market was closed Monday.
In recent days, Divine has contacted investors to invite them to do due diligence on various business units in advance of a bankruptcy filing, according to an investment banker and an unrelated potential buyer.
"They reached out to us in a very aggressive manner and gave a pretty strong indication they're going to file bankruptcy," said the potential buyer, who asked not to be identified.
The financial adviser said that by lining up buyers, Divine strengthens its prospects for an orderly wind-down. It's rare for software firms to emerge from bankruptcy.
Divine's management team "is trying to sell pieces," the adviser said. "Various advisers are selling pieces."
Negotiations, meanwhile, are continuing to sell RoweCom to a large, financially sound private company, EBSCO Industries Inc.
Divine has said the RoweCom sale would resolve Divine's problems and allow it to focus on its core business, which is selling software and services, including consulting and Web hosting.
Yet rumors persist that Divine is too troubled to survive the RoweCom crisis.
Ironically, Divine's biggest creditor--apart from RoweCom's disputed claim--is likely to be the bankruptcy trustee of another former Internet highflier that once turned to Divine for help.
MarchFirst Inc. was facing a cash crisis in spring 2001 when Divine's founder and chief executive, Andrew "Flip" Filipowski, bought the company's Midwest operations for $12.5 million cash and a balloon payment due in five years.
That $57.5 million payment is due in April 2006.
Meanwhile, Divine has more pressing problems.
Divine burned through $27 million in the third quarter, leaving $63 million in unencumbered cash as of Sept. 30, according to its most recent quarterly report filed with the Securities and Exchange Commission.
At the time, Divine had drawn about $10 million on a $40 million line of credit from LaSalle National Bank, according to the filing.
Divine's fourth-quarter report is scheduled for release on Feb. 25, when it is expected to take a $300 million writedown of goodwill--a non-cash charge.
Observers had speculated Divine's most likely savior would be Oak Investment Partners, which last year effectively bought control of the company with its investment of $61 million.
Oak Investment Partners's managing partner Fred Harman did not return telephone calls Monday.
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