rudedog: I think Rosen sold AV because he was overwhelmed by COMPAQ's problems not because selling it was better than floating it.
Selling it could be said to have had benefits:
(1) it reduced immediate managerial problems, re-focussed COMPAQ on its core competency, clarified its new internet strategy:
(2) it elminated AV start-up and development expenses and acquired some cash:
(3) it removed market speculation and potential shareholder unrest about the method of floating and the distribution of the proceeds:
But I think that explanation is a rationalisation of a doubtful decision.
Using the same categories as above, there would be more cogent arguments for having floated AV:
(1)the managers in charge of the AV float are still in charge but they now work for CMGI: it would not have upset the focus on COMPAQ's core competency no more than owning 17% of CMGI or 20% of AV now does and it would have enhanced, not diminished, COMPAQ's internet strategy and its image as a leading internet player and not a mere boxmaker:
(2) the AV start-up and development expenses were relatively minor for COMPAQ and would have been recovered with a very large premium at the time of the float, which was scheduled to be in the Fall, 1999:
(3) the prospect of an AV float in the Fall would have boosted the share price and certainly prevented its fall below $20:
I think there are additional arguments for a float - such as the diversification of revenues, marketing of COMPAQ's hardware and services, inflated shares of AV being used to make additional strategic acquisitions - and a better version of Rosen's plan (if you liked his plan) - namely, the re-selling of a floated AV for a much higher price to one of its competitors in a year or two. CMGI would have bought a floated AV, too, but at a much higher price than it paid. |
