briefing's take:
...
CMGI Buys AltaVista, et al., Maybe
Late on Tuesday, a rumor swept through Wall Street that CMGI (CMGI) and Compaq (CPQ) were in discussions to have CMGI buy Compaq's internet services, primarily AltaVista, for approximately $2 billion in CMGI stock.
Wall Street obviously hated the idea, dropping CMGI stock by $8 1/16 to $94 15/16, or about 7.5%. Compaq was the beneficiary, as their stock rose 1 11/16 to 23 13/16, or about 7.6%. All of these changes happened in the last hour and a half of trading.
What to make of this situation? Here are a few of Briefing.com's observations.
First, it shows just how fickle Wall Street is, and how willing they are to react to unsubstantiated rumors. This was a Wall Street trading floor type rumor. It is worth remembering that most institutions are playing with other people's money. Their primary fear is explaining large losses to clients. Small losses can be buried within the overall performance of a fund. But large losses demand explanations, in most cases. So dumping on rumors is a quick way to avoid what might become a bigger problem. They can always buy it back if they are wrong. (If there is any clear difference between professionals and individuals it might be the ability to completely change a point-of-view instantly.)
Dumping on the rumor should not be construed that the deal does not make financial sense. How could it, since no one has had any chance to evaluate the financial nature of the deal, or even what the $2 billion includes? It is pure knee-jerk reaction.
Secondly, CNBC reported after the close that they had talked to David Wetherell, chairman of CMGI, who refused to comment. While a refusal to comment will probably fuel the rumor on Wednesday (this is being written Tuesday night), since it is not a denial, it is far from a confirmation. The market is in pure speculation territory at this point.
Third, to us at Briefing.com, the way we heard it, the idea sounds terrific. What we heard after the close, is that CMGI is going to buy all of Compaq's internet operations, including AltaVista and Shopping.com. We could not get any information about whether Millicent was included, and we should emphasize that all we heard is what the rumor is, not any kind of "inside" gossip.
But, if Millicent is included, then CMGI is getting a great deal. Millicent is an existing, fully beta-tested, ecommerce product that allows collection of millicent "credits" by internet merchants on a page view basis. There is no registration or signup for users that have millicent credits. When you view a millicent enabled page, your account is debited, by as little as a thousandth of a penny (hence milli-cent). To the user, Millicent is transparent and completely anonymous. (Think what it would do for pornography sites alone...)
At Briefing.com, we have always thought that Compaq was sitting on "two loaded shotguns" in AltaVista and Millicent. We said so in our Stock Brief of July 27, 1998. At the time, we argued that Compaq could turn Millicent into a defacto form of currency on the internet by a simple three step business model:
Install a Millicent wallet on every Compaq PC with buying power already installed, perhaps $20 - $50 worth. Sell additional credits by credit card.
Distribute Millicent server software free to Internet merchants everywhere.
Collect a percentage-of-transaction fee from internet merchants when they "cash in" their Millicent credits. Earn interest on the float between the time Millicent credits are purchased by users, with credit card, and the time that internet merchants cash them in.
The potential at Compaq would have been huge, we felt, (especially if Compaq also made AltaVista the default home page for preinstalled browsers.) We even heard later from members of the Millicent team at Digital, that our Stock Brief was presented to Eckhard Pfeiffer, then CEO of Compaq, in an attempt to get Compaq to support the idea. Pfeiffer, we were told, refused to consider it. He's gone now, but he never did much with the Internet except purchase the nearly bankrupt Shopping.com for $200 million.
In January, Briefing.com spoke with Russ Jones, manager of the Millicent division (See Stock Brief of January 13, 1999). At that time, he told us that Compaq planned to sell Millicent to a third party who would commercialize the product. No announcement has every been made since that time regarding the Millicent product.
In the hands of CMGI, Millicent could instantly become a widely used service on the internet. There are many subscription based services who would like to offer users the ability to view pages for a small fee, without having users commit to subscriptions. Briefing.com would welcome a Millicent solution as a way to allow users to sample Briefing.com on a trial, but paying basis, as well as accommodate occasional users. Hundreds of other sites would also. Currently, no such system exists on the internet.
If CMGI is able to purchase AltaVista, Shopping.com, and the Millicent software group for $2 billion in CMGI stock, we think they could be stealing a very powerful package from Compaq. Lycos (LCOS) is worth $4 billion. AltaVista is consistently in the top ten visited web sites. It may not have revenues or earnings to speak of, but Lycos's value isn't based on revenues, either. AltaVista simply needs to be developed, but so do the other portals!
Why Wall Street thinks that Compaq's internet products in the hands of CMGI is a disaster is baffling, especially if Millicent is also included. CMGI is a company that could finally do something with these powerful, but neglected products. |
