PSINet obtains Internet adviser

Metamor purchased for $1.65 billion to broaden services

March 23, 2000|By BLOOMBERG NEWS

HERNDON, Va. -- PSINet Inc., the business Internet access provider whose name is on the Baltimore Ravens football stadium, agreed yesterday to buy Metamor Worldwide Inc. for about $1.65 billion in stock.

The deal gives PSINet a controlling interest in Metamor's Xpedior Inc., a unit that advises companies on doing business on the Internet. Metamor more than doubled, jumping $17.3281 to $33.3281. Its shares had fallen 45 percent this year. Xpedior surged $7.6875, or 54 percent, to $22. PSINet fell $7.9375 to $41.5625.

The purchase is the latest for Chief Executive Officer William Schrader, who wants to make PSINet the biggest Internet company for businesses by expanding into Web-site design, software installation, consulting and other services. PSINet provides Internet services in 27 countries.

"PSINet was a connectivity specialist; they hooked people up to the Internet. There's only so much growth left [because] host companies are hooked up, so they had to enter areas" such as consulting and Web hosting, said A. G. Edwards & Sons analyst Joseph Eshoo, who has a "strong buy" rating on the shares.

PSINet, based in Herndon, Va., will exchange 0.9 share for each Metamor share. That values Metamor at $37.41 a share, more than double Tuesday's closing price. PSINet will issue about 44.2 million shares for the Houston company's outstanding stock and options, according to a PSINet spokesman.

PSINet has used acquisitions to expand beyond the U.S. market into Europe, Latin America and other regions during the past three years. The company said this month that it bought two Internet-service providers in Argentina and one in Brazil.

The acquisition of Metamor will allow PSINet to sell more services, including maintenance of computer systems and software installation and customization.

"It has exactly what we're missing," Schrader said in an interview. "PSINet prior to this moment has focused on infrastructure for supporting businesses. For us, [this purchase] is moving up the food chain into higher margins."

PSINet had 91,000 business accounts at the end of 1999. Businesses outside the U.S. represented 64 percent of PSINet's customer base Dec. 31.

By acquiring Houston-based Metamor, PSINet also will be able to rent software to customers that don't want to buy it. Renting software is becoming increasingly popular, said Ulric Weil, an Internet analyst at Friedman, Billings, Ramsey & Co.

"They want to appear as a one-stop shopping service," said Weil, who rates the stock a "buy." "It's a good acquisition."

To buy Metamor, PSINet parlayed a 60 percent surge in its stock price this year that pushed the company's shares to an all-time high this month. PSINet's expansion has translated into widening losses. It lost $416.2 million in 1999, compared with $261.9 million in 1998. Revenue more than doubled to $554.7 million in 1999 from $259.6 million a year earlier.

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