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MODEM, TN TECH MERGER CREATES INTERACTIVE GIANT;FILING FOR IPO COULD BE MADE BY THIS WEEK

By Published on .

The merger of Modem Media and True North Communications' TN Technologies creates the nation's largest interactive marketing agency, with an estimated $45 million to $50 million in revenue this year.

The high-profile companies' union also will result in a powerhouse with expertise that extends beyond interac-tive marketing to include technological solutions for sales and distribution.

Westport, Conn.-based Modem and TN Technologies, with offices in six cities worldwide, last week agreed to combine their operations under the TN Technologies mon-iker and pursue an initial public offering. A filing could come as early as this week; Morgan Stanley & Co. is the lead underwriter.

SALE*FINALIZED BY NOVEMBER

The merger, in negotiations for at least five months, is expected to close in November. Modem will get $25 million in True North stock at closing and another $4 million in stock upon completion of the IPO. Modem will retain about a 45% interest in the combined company.

Modem generated $11.5 million in revenue last year, according to Inc., while TN Technologies is believed to have generated $20 million in revenue. With strong growth, the companies are on track to have combined revenue of between $45 million and $50 million this year, people close to the merger said.

Rival interactive agency CKS Group, Cupertino, Calif., went public late last year; it reported 1995 revenue of $35.4 million and will top $55 million this year. Another competitor, Poppe Tyson, New York, said in its August IPO filing that it generated $24 million in revenue for the fiscal year ended March 31.

But neither company derives aTN-Modem merger

TN from Page 3

much of its business from interactive work as Modem and TN Technologies do. Interactive work accounted for $7 million of Poppe's revenue and about one-third of CKS' total. CKS has significant business in package design and corporate identity services.

NOT JUST INTERACTIVE SOLUTIONS

The merged TN-Modem will create not just interactive marketing solutions, but new technologies and distribution systems.

Upon completion of the merger, TN Technologies will have three units: R/GA Interactive; Modem Media; and Relationship Technology Group.

R/GA, an existing design and production unit of TN, will likely continue in that role, while Modem will handle account and media work; the new Relationship Technology Group will work on software and technology solutions.

Greg Blaine, chairman-CEO of TN Technologies, will keep his title. Modem founder and partner G.M. O'Connell will be president-chief operating officer in charge of day-to-day operations. Modem's two other partners, Robert Allen and Doug Ahlers, will serve as president of Modem Media and president of the Relationship Technology Group, respectively.

Executives from Modem and True North declined comment, citing the pending IPO.

QUESTIONS RAISED

The announcement raised more questions than it answered. "I don't know what TN Technologies really is yet," said Lauren Fine, analyst with Merrill Lynch & Co.

The deal, if completed, will end Modem's nearly yearlong search for a partner and fulfill TN's desire to build its business before filing for an IPO. Modem almost merged with Poppe this year, but the deal was called off at the last moment.

Modem, founded in 1987, gains an immediate global presence in linking with TN, which has offices in New York, San Francisco, Chicago, Toronto, London and Hong Kong.

Together, the two companies represent some of the most active interactive marketers. Modem's lead client is AT&T, accounting for three-quarters of its revenue; others are Hasbro, Reader's Digest Association and Delta Air Lines. TN Technologies has created Web sites for AT&T, Levi Strauss & Co. and Campbell Soup Co., among others.

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