MGCN update: "retract that retraction" 10/12/99
Wrong question: When will the rocket be launched?
Right question: How high will the rocket fly?
On Sept 16, I reported here the following:
"MegaChain is in negotiations with an English company that wants to, in
essence, buy the European franchise of Megachain. Essentially, this
company would pay MegaChain for the rights to sign up European ISP's
and vendors."
On Sept. 28, MGCN's press release reported that they had signed a deal
with Greenchip. That same day I gave the following analysis:
1. The deal provides MGCN with a cash infusion, without the dilution
that secondary financing might have entailed.
2. The deal demonstrates international interest in the Megachain
program. Similar franchises can be sold around the world. In
particular, Greenchip investments PLC is a subsidiary of the Australian
venture capital group Greenchip Funds Management Pty Ltd, (see
greenchip.com.au for more info about Greenchip). Megachain
can easily negotiate a similar deal with the parent Greenchip company
for the Australian franchise.
3. The deal does not limit the price that Megachain may charge for this
franchise. The deal also does not prevent MGCN from directly signing up
European vendors, clients, ISP's, and agents. Megachain is free to
solicit higher bids for the franchise, or they are free to not sell the
Euro franchise at all if they want, and simply continue to seek out
European vendors and ISP's for themselves. All Greenchip has paid for
is the option to match any other offer for the franchise. The fact that
Greenchip was willing to pay for the option even under these harsh (for
Greenchip) limitations illustrates the enormous perceived value of
Megachain's product.
Next, on Sept. 30 I made the following retraction:
Correction: I incorrectly reported that Greenchip had bought the option
on the European franchise of MGCN. They actually only got the option on
the United Kingdom franchise. Greenchip wanted to buy the Euro
franchise, but (because of other ongoing negotiations) Tom Lavin wasn't
willing to give them that much, and Greenchip eventually settled for
just the UK.
Now, with today's MGCN news release, I can retract that retraction. My
original sources were correct all along - Greenchip was indeed
negotiating for the entire European franchise. Greenchip now has met
Lavin's price for the option on that European Economic Community (EEC)
franchise. Today's news is that Greenchip has now purchased the option.
Today's news release includes the following quotation from Tom Lavin:
"I will be spending the week of October 11 in the UK in an effort to
bring to a successful conclusion our negotiations with Greenchip
Investments PLC. I am of the opinion the Greenchip Group has the vision
and infrastructure required to successfully implement the MegaChain
system in the UK and throughout the EEC."
Note that Greenchip has not yet purchased the franchise, they have only
bought the option to purchase the EEC franchise. Tom Lavin is in
England this week to see if Greenchip will meet his price for actually
buying the franchise.
Selling this franchise is of tremendous long run value to Megachain,
because:
1. The price will likely include cash up front, to reduce or eliminate
the need for second round financing, without the dilution that a
typical venture capitalist might demand.
2. The faster MGCN's market base grows, the faster corresponding Ad
revenues grow. The Euro franchise can basically double the MGCN's
starting market base.
3. Successfully selling the EEC franchise provides even more evidence
to investors of the long run viability of the MGCN program.
4. Similar franchises can be sold to the rest of the world.
This is all good for Megachain, but what about the "big news," that is,
release of the list of vendors and ISP's to kick off MegaChain's
initial marketing campaign? The company still says 'soon.' My sources
correctly predicted that there would be a good news release this week,
but it was the Greenchip EEC news, not the big news we've been waiting
for. With Lavin spending the week in England, it is possible that the
kick off will wait at least until his return. For Megachain, the long
run value of selling the EEC franchise may be well worth a few more
days delay in the launch.
As noted before, waiting longer will make the splash bigger when it
happens, but the downside of delaying the kickoff too long is that the
time between the start of the campaign and the Christmas holidays is
reduced. Another downside is that short term investors become upset and
sell, but Megachain doesn't care much about them - Lavin & company are
focused exclusively on the success of the business. When Megachain's
revenues grow explosively, the stock price will follow. Price changes
measured in dimes over days mean little. The owners are looking a few
months down the road to a stock price measured in dollars.
One final note. Netcentives, NCNT, is due to IPO shortly. They are not
competitors to MGCN (Megachain does not have competitors), but they are
also in the business of increasing web advertising effectiveness. The
NCNT IPO will likely increase in the visibility of other firms in that
general arena, including Megachain.
signed,
Blue Voodoo |
