No-name bids for big-name firms raise eyebrows on Wall Street
By Angela Moore
NEW YORK, Aug 2 (Reuters) - Aspiring tycoons don't need a
hefty balance sheet or flashy offices to propose a takeover of
a publicly traded company these days, not if they have a home
computer and a way of getting the word out to Wall Street.
Look no further than Carl Wright, chief executive of
Pegasus Capital Group, a company he says was formed to take
over Autonation Inc. , the largest U.S. new-car retailer,
as well as similar companies. In addition to his work as
Pegagus CEO, Wright has a day job, but he won't divulge the
name of his employer, except to say it is one of the largest
auto-financing companies in the world.
And then there's William Miller, chief operating officer of
Undertherapy.com. His company, he says, has a staff of six and
plans to use hand-held computers to keep recovering addicts in
touch with counselors. Miller and company got their 15 minutes
of fame last week by making an unsolicited offer for drkoop.com
Inc. , the high-profile health Web site that is
struggling to keep afloat.
"This is the first we've ever heard of this company,"
Rachel Terrace, an analyst with Jupiter Communications Inc.
said, referring to Undertherapy. "No one knows what they are,
what they do, what their business plan is, what the potential
synergies are with drkoop."
Both Pegasus Capital and Undertherapy were able to catch
the attention of investors and the financial media -- thanks to
wide distribution of press releases announcing their proposals
and the ease with which the public can access information
online.
Some analysts say more liberal securities rules governing
announcements about takeover offers, which were introduced at
the beginning of this year, may have also opened the door to
the floating of more such proposals.
While Undertherapy isn't even on the radar screen of most
industry analysts, Miller insists his offer, terms of which
were not disclosed, was legitimate.
"We have checks cut and we are solvent," he told Reuters.
"This isn't our first deal -- we weren't scooping toys out of a
Cracker Jack box a few days ago."
And size doesn't necessarily matter.
"As long as the guy is legitimate, who cares if nobody's
heard of him?" said Lamar Graham, director of digital
journalism at New York University. "That's Wall Street's
problem."
Last month, several merger proposals came out of the blue
via press releases, attracting notice from the financial media.
The news temporarily raised share prices, and eventually
eyebrows too, as analysts and the target companies themselves
questioned the motivations behind the proposals and the
wherewithal of the suitors.
The Internet and the personal computer make it easier to
aggrandize players who once might have been ignored, some
experts say. The impact often is to give a lift to a sagging
stock price, at least temporarily.
"It is possible with new electronic media for people to get
very wide circulation for rumors that in the past could not get
very far," said John Coffee, a professor specializing in
securities law at Columbia University.
He said the Securities and Exchange Commission had been
concerned that when it introduced the new rules in January that
there might be a temptation to announce intentions of an offer
that the bidder didn't plan on consummating.
Still, SEC spokesman John Heine said that there were broad
anti-fraud provisions to protect against any false or
misleading takeover proposals. "Floating a proposal is still
considered a serious step under these provisions," he said.
BIDDERS WITHOUT CONTACT PHONE NUMBERS
To be sure, Beverly Hills, Calif.-based Undertherapy said
it wanted to harness drkoop.com's well-known name, rebuild the
company and move it to Manhattan from Austin, Texas -- and no
one has supplied any evidence that its proposal should not be
taken at face value.
The proposal raised questions, however, partly because it
came on the heels of another proposal for drkoop.com from
little-known MillenniumHealth. Market watchers were also wary
when Undertherapy's phone number was not in service the morning
the statement was released, and its Web address was incorrect
on the announcement.
The proposal by MillenniumHealth, a Reston, Va.-based
company which runs a health-care news wire and online medical
technology marketplace, was withdrawn on Monday, less than two
weeks after it was put on the table. After "several serious
discussions" the companies were not able to agree on a
proposal, MillenniumHealth said.
In July, AutoNation rebuffed the proposal from Pegasus
Capital, saying it did not believe the company had the means to
back it up.
"We do not believe this is a credible offer," AutoNation
spokesman Jim Donahue said in a statement. "Neither do we have
any information to suggest Pegasus Capital has the means to
effect its offer."
The proposal may not have raised a ripple of attention if
it was not distributed by PRNewswire, a service that carries
thousands of press releases a day to news organizations and
others.
"AutoNation told us they thought that the proposal was not
legitimate," said Dave Armon, senior vice president of
customers and markets of PRNewswire, which disseminated the
statement and later withdrew it. "We did some checking and came
to the same conclusion."
The press release issued by Pegasus gave no telephone
contact information. It only offered an electronic-mail address
and a Web site address (http://www.anacquisition.com) that
displayed a copy of the original "proposal."
"I didn't want to get tied up on the phone all day
discussing this," Pegasus' Wright told Reuters. "But there
really isn't any other additional information that is pertinent
to discussions with AutoNation."
Wright, who has a post office box mailing address for
Pegasus, would not divulge where he worked or his office
telephone number.
"I can't have you calling my office," Wright said. "This
has nothing to do with my employer and if you bandied about my
employer's name, that would make the story juicier and it would
mislead people."
Only the day before, Pegasus applied for membership in
PRNewswire, giving it the right to distribute statements
through the service.
"I filled out their application -- every piece of
information they requested on the application was accurate --
faxed it over to them," Wright said. "They approved it and said
here's your account information."
"EVERYONE'S ANTENNA IS UP"
News organizations rely on press release disseminators like
PRNewswire and Business Wire, its main competitor, for
gathering company information. After paying a yearly membership
fee, companies are charged about $550 for a 400-word press
release to be distributed to newspapers, wire services and
television stations nationwide.
And while the press release services often don't tinker
with the content of the release, these distributors must check
that the source is who it claims to be.
"We're not journalists," Cathy Baron Tamraz, chief
operating officer of Business Wire told Reuters. "We don't go
deep into the content of the releases. We're more concerned
that companies putting out the news are authorized to do so."
The client is responsible for information contained in the
release, Tamraz said. They sign a membership statement that
verifies that they are authorized to speak on behalf of the
company, and that all of the information is legitimate.
"If they violate that, they are subject to legal action,
which has happened, rarely, but it has happened," she said.
Undertherapy's release was allowed to stay on the wire,
Tamraz said.
"I'm not sure if they are a real player in this deal," she
said, "but my concern as a news dissemination service is that
the company issuing the news was authorized and that seems to
be the case ... but everybody's antenna is up on this."
Investors are not as naive as they used to be about such
issues, analysts said.
"A high skepticism will come to be associated with such
bids," Columbia University's Coffee said. "For the short term,
we may see a flurry of these kinds of transactions. If there
are more of them, the market is going to be very skeptical of
unknown bidders."
(Additional reporting by Derek Caney)
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REUTERS
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