IBeam says there's no time to consult stockholders
BY SCOTT HERHOLD
Mercury News
When the ship is going down with an American company, one of the things that gets jettisoned is the notion of democracy among the shareholders.
Consider the saga of IBeam (IBEM), a once-promising Sunnyvale company that aimed to use satellite connections to deliver broadcasts over the Internet. Once part of a flourishing Web broadcasting milieu, it had investments from Intel, Microsoft and venture firm Accel Partners.
IBeam went public at $10 a share in May 2000 -- just as the window for IPOs was closing -- and quickly soared to $27.88 a share in early June. But it's been dreary news since -- and the stock is now trading at 30 cents a share.
Worst of all, IBeam is running out of money. On revenue of $18 million last year, it lost $463 million. And last month, it hired Dresdner Kleinwort Wasserstein to explore financing options, a sign that things are in very dire shape.
Wasserstein and investment house Morgan Stanley determined that IBeam couldn't raise any more money at its current valuation, which is another way of saying that even 30 cents a share might be too much to pay for this stock.
So the company late last month unveiled a deal with a group of investors led by Williams Communications (WCG), a fiber-optics company based in Tulsa, Oklahoma. It's the details of that deal that give IBeam's story its peculiar flavor.
First of all, the new investors are getting a preferential deal. For $30 million in cash and $10 million in so-called ``like-kind'' services, the new investors are getting roughly 65 percent of the company. Although IBeam didn't bother to do the math in its news release, Williams is buying preferred stock that can be converted into common stock at 16 cents a share. (If you subtract the ``like-kind'' services, it's 11 cents a share).
Here's the kicker: IBeam is so close to running out of money that it has asked Nasdaq to waive the requirement that shareholders approve the deal.
The company baldly stated that it was going to run out of cash before it could get a proxy vote together. ``The agreement was not going to allow us to go to the shareholder base within the necessary time frame,'' said Rick Gaisser, director of investor relations for IBeam. ``So our only alternative was to go to Nasdaq for a waiver.''
Nasdaq has not yet acted on the proposal. A Nasdaq spokesman told me that while such a request wasn't common, it does happen. IBeam's audit committee has approved the deal, and the company is required to send a letter to stockholders explaining the deal in some detail.
But IBeam's demise has put Nasdaq -- and IBeam's shareholders, too, in an unusual position: On the one hand, Nasdaq sends out dunning letters to companies whose stock falls below $1 a share for an extended period, as IBeam's has. The terms of this deal will make it harder for the stock to climb above that threshold.
On the other hand, Nasdaq isn't in the business of putting companies out of business. And though this is a desperate move by IBeam, Nasdaq is hardly likely to quash it. ``The simple answer is that we live to fight another day with this deal,'' says IBeam's Gaisser.
Well, maybe. But IBeam's shareholders -- whose interests, after all, are being diluted by the deal -- are choosing to vote through their brokers rather than their proxy statements. My rough count showed that big investors, including Accel and Intel, have filed notice to sell 6.2 million shares over the last five weeks. This isn't democracy. But it reflects a certain street-corner justice.
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