Divine dumps planned Austin incubator

By Erik Ahlberg  Dow Jones Newswires  October 5, 2000

Beleaguered Divine InterVentures has backed away from plans to start an incubator project in Austin, Texas, the company confirmed today.  Divine had planned to build the Austin incubator community in about 500,000 square feet of office space with the help of two of its executives recruited from Dell Computer Corp.  Other similar projects in Chicago and Seattle are on hold until market conditions for technology and dot-com companies improve, the company said.  "Right now we prefer to apply our resources toward our family of companies rather than invest significantly in new opportunities," said Chief Financial Officer Michael Cullinane.  Sources said the Austin project could have cost upwards of $50 million to $100 million.  The moves fall in line with the company's belt-tightening strategy from earlier in the year. By capping its rapid spending to about $3 million a month from $13 million a month, Divine can more easily focus on its portfolio of more than 50 companies, said stock analyst George Nichols of Morningstar Inc. of Chicago.  "This is a sign of good things for them," Nichols said. "They need to focus on the areas that they know best."  Divine had not yet committed any significant capital toward the Austin project but the move nonetheless demonstrates the tough environment faced by most technology and Internet-related companies this year, said analyst Sara Rashtchy of U.S. Bancorp Piper Jaffray.  "We're still seeing casualties in the dot-com space," Rashtchy said. The venture capital markets have largely dried up, he said, and even existing companies are having trouble beyond the initial investment stage.  So what does that mean for a company like Divine?  "It's definitely bad," Rashtchy said. Beyond the capital crunch, the bad market for initial public offerings means that parent companies like divine can't expect to get much in return even if they do take firms public, he said.  Divine stands to gain once technology companies get aggressive in the merger and acquisition stage, Rashtchy said. Instead of relying on public markets, companies will only be reliant on one another for deals, he said.  But it won't come without a wait, and Divine's shares are already suffering. The stock recently traded at $3.13, down 18 percent or 69 cents on volume of 432,600 compared with an average daily volume of 494,200.