PurchasePro stock plunges: Problems with AOL deal cited

Kevin Ferguson

Wednesday, June 20, 2001 | 10:50 a.m.

A financial analyst remains doubtful that PurchasePro's new executive team can turn around the troubled Las Vegas-based software firm due to its heavy reliance on a partnership with one company -- America Online Inc.

And it doesn't help matters that AOL, a unit of AOL Time Warner, has suspended its chief negotiator in the PurchasePro deal, Eric Keller, senior vice president of business affairs, said Wedbush Morgan Securities analyst George Santana.

Keller was suspended pending an AOL investigation of its partnership with PurchasePro.

"PurchasePro may have lost its biggest champion in the AOL-PurchasePro relationship. (PurchasePro) is really in dire straits," Santana said, noting that its new chief executive, Rick Clemmer, has been "handed a very difficult senario."

PurchasePro shares fell 26 cents, or 20 percent, to an all-time low of $1.05 this morning.

Santana attributed the stock plunge to PurchasePro's heavy reliance on the AOL deal for PurchasePro's customer-growth. He doubts AOL has an incentive to remain PurchasePro's partner since AOL has already earned nearly all of the benefits it is entitled to under the deal.

Under the agreement AOL and PurchasePro struck to become partners last year, PurchasePro owes AOL a cash payment of $7 million in its current second quarter, and AOL retains the right to come back to PurchasePro for another $20 million in future quarters.

The two companies have co-developed the Netscape Netbusiness Marketplace, which aims to channel mutual business traffic to each others' sites.

"I have a heavy suspicion that Clemmer is involved in having that deal restructured," Santana said.

Clemmer told Wall Street in a conference call Tuesday PurchasePro expects a larger net loss in the current quarter than the previous quarter, when PurchasePro reported a loss of $17 million.

The loss will exclude a one-time restructuring charge of $30 million to $45 million, of which $8 million to $10 million will be a cash charge, Clemmer said.

Part of Clemmer's plan to restructure the company includes firing 50 percent of its 600 employees, and focusing on packaged software sales, rather than Internet-based hosting and maintenance fees.

PurchasePro builds marketplaces that allow businesses to buy and sell products online.

Clemmer said the restructuring would reduce the company's quarterly cash burn rate from the current level of $20 million to a level between $11 million and $13 million.

Santana said it's going to be difficult for PurchasePro to reduce the burn rate, if it's going to make the required payments to AOL in the coming quarters.