CMGI Bids for Engage, Lowers Guidance

Internet investor CMGI wants to acquire all outstanding shares of marketing software maker Engage it does not already own, in a potential prelude to still more changes at the marketing software company.

Currently, CMGI has a 75.5 percent stake in the firm. The offer, which has been approved by CMGI’s directors, values Engage at 24 cents per share, a 20 percent premium over Monday’s closing price. Both firms are based in Andover, Mass.

“Engage’s board of directors intends to appoint a special committee of independent members of the board to evaluate and negotiate the proposed offer,” the company said in a statement.

Exactly what CMGI plans to do once it owns all of Engage is uncertain, though insiders have said the company is mulling the possibility of merging the embattled online ad player with a better-performing sibling, email marketer yesmail.com.

Such a move would be aimed at stemming the continuing losses at both Engage and its parent — especially since the bid was announced in connection with profit warnings from both companies.

Engage, still feeling the pains of the tough online advertising market, said third-quarter revenue would be between $5.3 million and $5.6 million, down from $6.1 million in the previous quarter. Net loss from operations is estimated to be between $7.2 million and $8 million, or about 4 cents per share. The disappointing results include a charge of approximately $2.6 million lease write-offs.

Engage President and Chief Executive Christopher Cuddy said the firm also had abandoned its previously stated target of hitting operating profitability by the end of next quarter.

Meanwhile, CMGI said revenue would be about $188 million for the third quarter, compared to $210 million in the previous quarter. Net loss is expected to be about $54 million, compared to $42.4 million in the second quarter.

CMGI’s results include disappointing performances at auction site uBid and Engage, as well as approximately $8 million in one-time charges related to the renegotiation and write-off of real estate lease obligations at the company’s Engage and AltaVista subsidiaries.

“We are not satisfied with the results for the third quarter,” said George McMillan, CMGI’s CEO. “We are taking immediate and decisive actions to remedy the major contributing factors. Last week we completed the installation of a new executive management team for uBid.”

At the same time, CMGI, which has been cutting investments for more than a year, said it will likely miss fourth-quarter and full-year estimates as well because of uncertain demand.

As CMGI derives all of its revenue from its operating companies, McMillan’s promise is likely to entail still more overhauling at its subsidiaries. Last week, CMGI installed a new executive management team at uBid.

That’s likely a sign that the troubles also aren’t yet over for Engage, which recently reemerged from a difficult period of reorganization that saw an overhaul of its product line (including an abandonment of its online media network strategy), its internal structure, and its management.