Merrill Slams Inaccurate Barron's Article
20 March 2000
Henry Blodget
First Vice President
Edward McCabe
Vice President
VerticalNet
Barrons Article Paints Inaccurate Picture of
VERT's Cash Position
Reason for Report: Company Update
Investment Highlights:
An article in this weeks Barrons ranked
public Net companies according to cash burn
rates and when they will need to raise
additional capital. According to the analysis,
VERT was ranked number five and will need
to raise additional capital by May of 2000.
While we believe the article touches on an
issue that looms ominously for manyNet
stocks. We disagree with Barrons assessment
of VERT's Cash position.
First, we believe Barrons failed to consider
the $24mm in long-term investments on
VERT's balance sheet at the end of Q499.
These long-term investments are primarily
corporate and government debt, which for all
intents and purposes, we consider liquid.
Also excluded from the analysis was VERT's
285,000 share position in Ariba, which is
valued at $1mm on VERT's balance sheet, but
currently has a market value of approximately
$77mm. The ARBA investment is 90% liquid
today.
Finally, while mentioned in the article,
MSFT's $100mm investment in VERT was
excluded in computing when VERT would
burn out of cash. Considering the MSFT
investment and the other aforementioned
liquid assets, we believe VERT has a pro-forma
cash balance of approximately
$250mm. According to our projections, VERT
should reach operating profitability in 3Q01
without having to raise additional capital.
Finally, should VERT choose to raise capital
to pursue more aggressive growth, we believe
it is positioned better to do so than many of
the fledgling businesses highlighted in the
article. VERT is a leading B2B player with, in
our view, a clear path to profitability.
We continue to rate VERT Accumulate/Buy.
Source: Merrill Lynch Report: Barrons Article Paints
Inaccurate Picture of VERT's Cash Position Dated 20 March 2000
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