*Update: Direct Media, ALC in Merger Talks

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American List Counsel, Princeton, NJ, and Direct Media Inc., the Greenwich, CT, list management arm of Acxiom Corp., Conway, AR, are in early stages of merger talks that could lead to the formation of a new company jointly owned by principals of both ALC and DMI.


A nonbinding letter of intent has been signed, company officials confirmed Friday. According to preliminary plans, Acxiom would have a minority equity stake in ALC, with ALC retaining management and board control. ALC also is expected to enter into a long-term strategic alliance with Acxiom for information management services.


A merger would free the entrepreneurial, marketing-oriented DMI from the control of Acxiom, which has struggled to integrate the country's largest list brokerage into its organization in the three years since acquiring it. But analysts and industry insiders said DMI would benefit from an ongoing relationship with Acxiom, which increases DMI's value by adding data analysis capabilities and other database services.


"We hope to bring together two industry leaders to create the largest distribution channel for consumer and business marketing information," ALC chairman/CEO Donn Rappaport said in a statement.


ALC is thought to be positioning itself for an eventual public stock offering, although it was not clear whether the merger talks were aimed at achieving that goal.


A source at DMI said that company's principals would like to gain independence from Acxiom's control, and several people both inside the company and in the industry report that an intense culture clash between Acxiom and DMI has hampered the integration of the two companies. A financial analyst who follows Acxiom said the company also may want to sell DMI simply because it might not have met Acxiom's stringent financial targets.


"They have thresholds that they have to reach," said Robert Bolen of J.C. Bradford & Co., Nashville, TN, "and if it does not grow as much as they thought it would, they might want to unload it."


Acxiom recently reported that the DMI division had revenues for the fiscal year ended in March that were flat compared with the year ago levels, around $72 million. Last summer, the division laid off 30 employees to meet its financial targets. The Acxiom/Direct Media products group generates almost 10 percent of Acxiom's annual revenue, which totaled $730 million in the fiscal year ended in March, and 15 percent of its pretax profits. Acxiom's profits before special charges last year were $65.5 million.


Acxiom originally agreed to pay $25 million for DMI in 1996, but the actual payment received by the DMI principals earlier this year valued the deal at more than $52 million in Acxiom stock. It was not clear what the price DMI might fetch if Acxiom did sell it. One list company executive who asked not to be identified, however, said DMI might have lost some value under Acxiom's reign.


An ongoing relationship with Acxiom is key for the merger to be successful, industry insiders said.


"[Acxiom] has tools there that Direct Media has been using very well for its clients and its customers," said Ralph Stevens, president of list firm Stevens-Knox, New York.


Stevens, who hadn't spoken to the principals of either ALC or DMI, said such a merger could bolster ALC's online efforts, which it operates through its ALC Interactive division.


"Both Direct Media and ALC have Internet capabilities and departments that work with the Internet, so they could merge those," he said. "It gives them a leg up in that area with both their capabilities and probably would make them, in terms of their involvement with the Internet, the major player out there."


In other news last week, Acxiom filed to offer 5.5 million shares of common stock to the public, including 1.5 million that will be offered by the company and the rest by certain stockholders. The company said it would use the proceeds to reduce the outstanding balance on its credit facility, which would give the company more money for acquisitions, working capital and general corporate purposes.
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