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Weak Economy Claims ArsDigita, Makes Arthur D. Little Bankrupt

By Kevin R. Lang

EDITOR IN CHIEF

Out with the old, out with the new. Two companies with MIT roots have fallen on hard times lately -- Arthur D. Little, Inc., founded in 1886 by Arthur D. Little 1885, and ArsDigita, co-founded in 1997 by MIT Affiliate Philip G. Greenspun ’82.

Arthur D. Little announced on Feb. 5 that it signed an agreement, subject to bankruptcy court approval, to sell the company’s assets to an acquisition company managed by Cerberus Capital Management for approximately $71 million. The company is currently protected under Chapter 11 bankruptcy laws while it restructures. Arthur D. Little filed voluntary petitions for reorganization under Chapter 11 on Feb. 5.

David R. Lampe SM ’76, director of marketing and communications for Arthur D. Little, said that “this whole reorganization means that Arthur D. Little will be able to continue.”

The company hit hard times in recent years when several initiatives failed, including the planned spin-off and initial public offering of its telecom consulting venture, C-quential, which was withdrawn in late 2000.

In addition, Lampe said that the company was restructuring its management consulting businesses, “which weren’t as profitable as they could be.” The company’s technology divisions, however, “have actually remained profitable throughout,” Lampe said.

Arthur D. Little founded by alum

Arthur D. Little has more than 2,000 employees in 30 countries worldwide, including its world headquarters in Cambridge. The company laid off approximately 400 employees last year, but Lampe said that “we don’t expect any further significant reductions.”

Little was also one of the founding editors of The Tech when it first published in 1881. He never graduated, but rather left MIT to found the company that bears his name, Lampe said.

The company started out as a chemical research firm, but branched out during the 20th century. Notable achievements include the patent for the first synthetic penicillin, the design for Nasdaq stock exchange system in London and Tokyo, and pioneering work on options pricing theory which won the 1997 Nobel Prize in Economics, according to the company’s Web site.

ArsDigita sells parts to Red Hat

ArsDigita, the open-source software company founded by Greenspun and others from MIT in 1997, was partially acquired by Linux distributor Red Hat, Inc. on Feb. 5. According to several published reports, the company’s doors were shut and at least half of ArsDigita’s 119 employees lost their jobs. Approximately 40 employees joined Red Hat.

Greenspun declined to comment. He is not allowed to discuss the company per a June 2001 settlement with investors which resulted in him relinquishing all ties to the company. He is currently teaching Software Engineering for Internet Applications (6.171) with Professor Harold Abelson PhD ’73 and Andrew E. Grumet SM ’94, who was also involved with ArsDigita.

Greenspun has said previously in published reports that the company recorded $20 million in revenue in 1999, while he was CEO. After venture capitalists put $35 million into the company, he was replaced by Allen Shaheen, while Greenspun remained on the board of directors.

The new management shifted the company toward proprietary enterprise software rather than open source, but a planned new software package never launched.