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July 10, 2000
BY JESSICA MADORE FITCH BUSINESS REPORTER
It's a matter of money and credibility.
Divine interVentures Inc., the Lisle-based Internet operating company, needs to raise $128.7 million to fuel the 52 dot-com start-ups that divine is incubating, and it needs the cash sooner rather than later.
But later seems to be the timetable divine is trying to cope with. First filed last December, the paperwork for the initial public offering has been rewritten, rethought and reprinted several times as the Securities and Exchange Commission and investors demanded more detailed financial information. The latest delay came last Thursday, minutes before the pricing of the private placement was to have taken place, with public trading set for last Friday.
It's highly unlikely the stock could trade publicly before Tuesday.
"Their core business of financing cash-burning start-ups will slow to a crawl without a stash of cash," said George Nichols, analyst at Morningstar, the Chicago financial information company.
Divine is using up cash fast. It went through $10.5 million in its first eight months of operation ending Dec. 31. Then, spending skyrocketed to $46.1 million in the next three months, and losses have continued.
Andrew J. "Flip" Filipowski's incubator still has considerable cash on hand--$100 million as of the end of May--but with a $5 million monthly "burn rate," combined with a formidable financial outlook, divine will eat through the money before long.
"Consider that only 30 of [divine's] 52 investments currently have revenues, and that nearly all of the holdings have losses," said Jeff Hirschkorn, senior market analyst at IPO.com of New York.
Divine also faces July 29 and July 31 deadlines for private funding that hinges upon the IPO. Three major investors who agreed to take private placements--Aon Corp., Level 3 Communications and BancBoston Capital Inc.--can back out of their agreements to buy a combined 6 million-plus shares of class C stock if the offering doesn't occur by the end of July. These private placements would give divine about $88.4 million, based on a $14 share price.
But divine's stock won't be priced at $14.
On Friday, divine's lead underwriter, Robertson Stephens, lowered the offering's price range to $9 to $10 a share from $13 to $15, indicating lackluster demand for divine stock.
It appears the red-hot IPO is cooling off fast.
Another problem: Now that divine's shares are slated to price below $10, CMGI, another key investor, has the option to review its own private placement with divine. The Andover, Mass., publicly held incubator agreed to buy 1.8 million class C shares of divine, as long as the IPO priced at $12 or more.
The offering also is urgent because Filipowski has an ambitious vision to fulfill. He preached the merits of his Internet Zaibatsu to many people who believed him enough to have pledged millions of dollars. But sky-high returns seem unlikely anytime soon.
"Flip set out to be public, and he needs to deliver on his commitments," said Frank D. Ballantine, head of the corporate group at Sachnoff & Weaver Ltd., a Chicago law firm.
These delays, price shifts and demand problems are undermining divine's credibility.
But consider this: The stock market has taken investors for wild rides this year. Investors fell in love with dot-coms for months.
Then, they changed heart. Demand for divine could re-emerge just as fast as it evaporated.