Published on Newswire, October 18 2000

Near-terminal listed Internet company LibertyOne has found an unusual saviour: a privately-held Hong Kong company, partially owned by one of its own directors, which is prepared to pour up to $34 million into the firm.

The company announced late this evening that it had finalised a recapitalisation deal with Hong Kong firm iReality. iReality will provide an immediate cash injection of $500,000 for the company, and will purchase just under 9% of the company for $2.3 million. These shares will be priced at just 6.2 cents, which is LibertyOne's average trading price over the past week.

If shareholder and Foreign Investment Review Board approval is forthcoming, iReality will purchase an additional 10% of the company for $3.6 million and will be granted options allowing it to purchase a further 35% of the company. The price for that part of the deal? Just 7.49 cents a share. If all these deals go through, LibertyOne will receive total funding of $34 million.

Who is iReality?

The recapitalisation may represent a turn in the fortunes of LibertyOne, which has become a poster child for the worst excesses of the dot com era, ripping through money and CEOs at a rapid rate. However, questions remain about the composition of the deal. It bears quite a resemblance to a previous bizarre takeover proposal by US company CyberSentry, a proposal that was ultimately rejected by the company. Like CyberSentry, a number of iReality's executives have worked with companies already associated with LibertyOne.

iReality founder Matthew Burlage, who will become co-chair of LibertyOne's board if the deal goes through, was appointed to the LibertyOne board in March this year, just a month after he founded iReality with Ravi Sarathy and Thomas Britt, who are also set to join LibertyOne's board. US-born Burlage, a former executive with banking firm Lehman Brothers (where Sarathy also worked), had previously acted as an advisor on the float of china.com, a company which unsuccessfully attempted to merge with LibertyOne last year and which remains one of its major shareholders.

Adding to the incestuous nature of the deal, the chief financial officer of iReality, Anna Tham, previously held that post at Chinese Books Cyberstore, the Asian online bookstore which LibertyOne had invested in last year. Chinese Books Cyberstore went belly-up in August.

In its funding announcement, LibertyOne described iReality as a provider of technology and strategy solutions, with offices in Hong Kong, Seoul, Singapore and Tokyo. However, the company has generally portrayed itself as an "Asian-based next generation Internet incubator" (to quote LibertyOne's own Web site), which aims to invest in regional Net businesses and help them become profitable.

iReality was set up with initial funding of $US33 million, and boasted earlier this year to the Asian business press that it would spend up to $US10 million of that on staffing. Within investment circles, Sarathy is generally better known than Burlage, and was credited with being one of the leading technology analysts in Asia before he jumped ship and moved to iReality.

"All we are trying to do is create real businesses based on earnings," Sarathy told the South China Morning Post earlier this year. That could prove a particular challenge for LibertyOne, which in its most recent financial results announced a $60 million loss. iReality has talked up its prospects of a Nasdaq float, a desire that LibertyOne has also voiced repeatedly but fruitlessly.

Zivo not going

While rumours had been rife that Zivo, LibertyOne's Web development company and its only remaining asset of any note, would be sold, it appears to form the centrepiece of LibertyOne's new plans.

"The agreement allows LibertyOne to retain full ownership of our core Zivo business which, after recent rationalisation, has a substantially reduced cost structure and improved profit outlook," said CEO Marcelle Anderson. That 'rationalisation' has included the resignation of several staff.