From the WSJ.online:
public.wsj.com
June 14, 2001
Argentina's El Sitio Struggles
To Find Its Place Amid Deals
By Michelle Wallin
Dow Jones Newswires
BUENOS AIRES -- Will troubled Argentine portal El Sitio Inc. find its place?
The onetime Nasdaq darling announced Monday the sale of its Internet-service provider in Argentina to a local ISP, Netizen SA, which in turn was recently acquired by SkyOnline Inc. of the U.S. El Sitio said it would release financial terms of the deal in the near term; SkyOnline declined to say how much it had paid for the 25,000 subscribers and other assets.
In ridding itself of its Argentine connectivity business, El Sitio is continuing a process which it hopes will culminate in a previously announced merger with Ibero American Media Partners. IAMP is a joint venture between the Cisneros Group of Companies and Hicks, Muse, Tate & Furst Inc., and the proposed merger would create a new company called Claxson Interactive Group containing Latin American television networks and channels, radio stations and Internet properties.
El Sitio also has announced an agreement in principle to sell its ISP operations in Colombia, pending final terms. Its connectivity assets in Brazil, the only other place El Sitio has a service provider, are also on the block. SkyOnline-Netizen is rumored to be interested in the Brazilian operations, although a spokeswoman declined to comment.
Despite delays in the merger's completion, El Sitio is still planning to go ahead with it and is shedding the assets in preparation, industry officials and analysts say.
They say the merger is essential to guarantee the future of El Sitio, which has been advised by the Nasdaq that its common shares have failed to maintain a minimum bid price of $1.00 for 30 consecutive trading days, as required by exchange rules. The company has until Aug. 14 to regain compliance, and El Sitio said it intends to maintain its listing.
And earlier this month El Sitio was hit with a class-action lawsuit over alleged irregularities in its December 1999 initial public offering. According to the lawsuit filed in New York on behalf of purchasers of El Sitio stock, underwriters in the offering received "excessive and undisclosed commissions" in the deal.
First-quarter earnings released in May were also disappointing. Net revenues for the first quarter dropped to $4.5 million from $5.6 million a year earlier, while its net loss widened to $21.5 million from $20.4 million over the same period. El Sitio blamed the poor performance on weak advertising revenue and its restructuring process.
"Without the merger they have a complicated future," said Stephen Graham, analyst with UBS Warburg in Rio de Janeiro.
Merger Deadlines Come and Go
The merging parties initially estimated it would be completed by the end of March, and El Sitio has carried out a broad restructuring, shedding 25% of its personnel, in preparation for the deal.
But March came and went without news. El Sitio said in May, on releasing its first-quarter earnings, that "it has been advised by IAMP's partners that they are evaluating their rights under the combination agreement governing the Claxson transaction, including whether or not they believe conditions precedent to closing can be fulfilled."
Spokespeople for IAMP and El Sitio say U.S. stock exchange rules prevent them from commenting on the deal.
People familiar with the situation say the sides believe it will move ahead, but that the terms will be revised.
Under the original terms, each outstanding El Sitio common share would be exchanged for one new Class A common share of Claxson. The resulting ownership structure would be 37% Cisneros, 29% Hicks Muse, and 34% El Sitio shareholders.
Mr. Graham said those terms gave El Sitio shareholders about $3 worth of value per share. "We thought the original terms were fairly favorable for El Sitio," he said.
El Sitio debuted at $16 per share, and reached its peak at nearly $45 in December 1999. On Wednesday, it was trading at 65 cents, after hitting a low of 41 cents on May 30.
Rob Hinchcliffe of Banco Santander Central Hispano in New York said El Sitio is growing less attractive as time passes because of its smaller cash position, its declining revenue and its loss of future proceeds from the ISP sales.
He said the real value for the IAMP was in El Sitio's portal, an early leader in the Latin American Internet market with its games, surveys, dating services, and other interactive tools.
"If I'm the Cisneros, maybe I still want to do the deal, but I'm asking myself how much is this portal really worth," Mr. Hinchcliffe said. He said he expected El Sitio shareholders to end up with something closer to 20% of the merged company if the transaction goes through.
If the merger were to fall apart, El Sitio likely would be forced to find another partner -- or even close down. Though El Sitio got an early start, the novelty of its portal has worn off and it's now dealing with a crowded market with major competitors such as Terra Networks SA with deeper-pocketed backers.
"It's a tough-enough market for much bigger players," said Mr. Graham. |
