Divine Inc. files for Chapter 11

Bankrupt stock

Cat 5 cable

divine inc filed a petition to reorganise under Chapter 11 of the US bankruptcy rules on Tuesday. Coincidentally (or not) it cancelled plans to make its fourth quarter and end-of-year 2002 statement, which was due on the same day. No doubt it would have been covered in red ink.

divine was founded by Andrew 'Flip' Filipowski whose previous claim to fame was that he was the founder of Platinum Technology. After he collected a bundle from selling Platinum to Computer Associates he set up divine, which was incorporated in 1999 as an incubator (at that time the company was known, with some presumption, as divine interVentures) that would encourage and grow small technology companies with innovative ideas.

However, for various reasons, notably to do with the dot com bubble and its subsequent bursting, the company reverted to a more conventional model.

Like Platinum, divine has been driven by acquisition, with the company buying up literally dozens of companies in the last couple of years. Also, like Platinum, it has never been very successful at integrating the products it has bought, and was better at buying market share than gaining customers by actual real-world sales and marketing.

Where it has differed from Platinum is that divine has been operating within a market that is in retreat, rather than one that was growing. It has been able to buy companies more cheaply as a result but many of them are probably worth less now than when they were bought. In particular, a major focus has been on content management, with acquisitions of companies such as Open Market and Eprise. While this market continues to have potential, it has hardly been the ideal money-spinner over the last couple of years.

The writing first started to appear on the wall last year, when the company started to scrabble around for money, suing as many customers as it could find for infringement of copyright.

In particular, one of the company's acquisitions, Open Market (the ex-content management vendor) had patents on various Internet shopping cart technologies and divine has been able to exploit this to take legal action against a variety of companies. Since this is hardly the way to make friends and influence people, it seems likely that the company had some inkling of the dire financial mess it was getting itself into.

What it didn't know was that one of its subsidiaries was fiddling the books. Or, actually, the magazines. Rowecom, one of divine's companies, had collected some $50m worth of subscriptions for magazines and other publications on behalf of a variety of publishers but had then used the money to pay off its own debts and to cover running costs rather than coughing up to the publishers.

This all burst onto the scene last December but it has (to divine's credit) more or less been resolved already. The Rowecom operation world-wide is being sold off and a settlement has been agreed with the various injured parties.

However, this was no doubt the straw that broke the camel's back. Last week divine announced that in the wake of this unpleasantness, it was calling in financial advisors with a view to considering its options. Now it has filed for Chapter 11. It has stated that a number of other companies have expressed interest in purchasing some of divine's technologies or subsidiaries and it seems quite likely that a shrunken, reduced divine, will emerge from Chapter 11 in due course. © IT-Analysis.com

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