23-Aug-2000 Wednesday
A proposed buyout of San Diego's troubled
CollegeClub.com has left
investors,
creditors and employees optimistic after months of declining
fortunes at the
Web-based company.
Officials from Boston-based rival Student Advantage
officially announced
details of their buyout yesterday, a day after
CollegeClub filed for
Chapter 11 bankruptcy reorganization. They said Student
Advantage will do
its best to breathe new life into CollegeClub, which was
hammered after
failing to get an infusion of cash from Wall
Street.
Raymond Sozzi, chairman of Student Advantage, said he does not
expect any
drastic changes at CollegeClub, such as relocation or
layoffs.
"There's no question about CollegeClub continuing to be in San
Diego,"
Sozzi said. "The company has already gone through quite a few
layoffs, but
it has a strong core team of workers that we hope to
retain."
The deal must still clear U.S. Bankruptcy Court. Sozzi estimates
that
process may take a minimum of six to eight weeks. But
CollegeClub's
creditors are hoping for a speedy resolution, in the belief
that much of
Sozzi's buyout price -- $7 million in cash and 1.5 million
shares of stock
-- will be used to pay CollegeClub's past-due
bills.
"It's encouraging to see the cash commitment from Student
Advantage," said
Greg Jones of Prolog Logistics, which recently sued
CollegeClub for $50,000
in unpaid bills. "I am optimistic that this deal will
result in a positive
outcome for creditors."
Scott Martin, who heads
marketing at CollegeClub, said much of the purchase
price will be used to pay
off the firm's bills.
"There's a clearly defined process that will be
followed," Martin said,
referring to the bankruptcy
proceedings.
CollegeClub, which runs a Web site offering chat rooms and
e-commerce
targeting college students, ran into trouble this spring, after
spending
millions of dollars on expansion plans.
The firm had hoped to
pay its bills by floating stock on Wall Street. But
when Wall Street turned
against dot-coms, CollegeClub pulled its stock
offering, forcing it to
scramble for funding. As recently as two weeks ago,
the firm was seeking
angel investors, according to several sources who
decline to be
named.
Student Advantage, which helps retailers peddle their wares to
college
students over the Internet, has been on Nasdaq for more than a year,
giving
it access to market capital.
The Boston company already has an
outpost in the San Diego area, after
buying Universal Netcasting in May 1999.
Sozzi says that rather than
cutting any of the 50 or so local workers at
Universal, Student Advantage
actually boosted the office size by 50 percent.
The office now has around
75 staffers.
Sozzi said the Universal
acquisition would serve as a pattern for how he
handles the CollegeClub
merger, adding that CollegeClub will be kept
"strictly autonomous" from the
firm's Boston headquarters. On the other
hand, he said there may be some
consolidation between CollegeClub and
Universal at some point down the
line.
CollegeClub would be an attractive acquisition for Student
Advantage. It is
said to be among the top 50 Web sites in the nation and the
top site for
college students. In addition, it has lucrative business
relationships with
such heavy hitters as General Motors, NBC-TV and
MCI.
By waiting for the company to go through Chapter 11, Student
Advantage will
be able to avoid being saddled with its debts. On the other
hand, it may
face other rival bidders for the company, whose buyout proposals
will be
evaluated by a bankruptcy judge.
Analysts say they are not
surprised by the takeover.
"We've been looking for shakeouts and
consolidation in a lot of areas,"
said Ted Kunzog, Internet analyst with San
Diego's IPEquity. "One of the
most powerful combinations that we see are
between companies that target
communities, such as the college
community."
Kunzog said that even though college students are a
"transient population,"
they tend to use the Internet more than others, have
access to high-speed
connections and have a lot of time on their hands,
making them a strong
target for e-commerce.