Infospace Special Shareholders meeting 9/12/02
Infospace had the formal meeting today to vote on the one for ten reverse stock split. It wasn't set up as fancily as the Annual meeting that I had attended. I couldn't see any goodies like coffee or cookies. From what I gathered the two guys (John Hall, general counsel and senior VP, and Ed Belsheim COO?) running the meeting were steering for a quick and non-contentious meeting that met the legal minimums. From what I also gathered the audience of about 60 people was more interested in expressing variations of concern, dismay, disgust, and disapproval. In brief the vote carried and the audience gained control of the meeting enough to ask lots of difficult questions.
After calling the meeting to order, the ground rules were laid down that questions relating to the split would be entertained. The proposal or motion for the split was introduced and seconded. The questions were to be asked while the votes were being tallied. I'll try to list some of the questions and the responses as I heard them.
> How is the split going to help shareholders? 1) It will avert NASDAQ delisting, 2) It will raise the stock price high enough to allow some institutional investors to purchase shares, 3) An intangible effect is that a low stock price causes some customers to perceive that the company is having financial difficulties.
> Why doesn't the company repurchase shares at such a low price? Repurchase was considered but of 37 companies they studied the repurchase only had a short time effect. They would rather use the cash to invest in technologies and acquisitions.
> I didn't understand the issue of the CEO's stock activity. Maybe someone else caught this and can comment on it.
> Is the share price drop related to the class action lawsuit? They can't comment on that.
> Have they certified their accounts? They emphasized that the questions should deal with the split though they would answer the questions later.
> Why ten for one instead of something like four for one? 300,000,000 shares is too many for a company of their size. It got that way through forward splits and stock based acquisitions.
> Is this prelude to another dilution? No.
> Does this dilute Nuveen's percentage? No.
> Previously there were assurances that the company would not be delisted but it sounds like the reverse split was being considered at that time. What is the story? Also, why is the CFO not at the meeting? (My notes are devoid of an answer but I know he said something.)
At this point enough folks were upset about questions being put off until after the meeting that Ed opened the floor to all questions.
> What is an estimate for profitability? That is a daily effort but they won't speculate. Their burn rate is about $12m per quarter.
> Someone asked about loans being written off. There was some disagreement over the timing of these actions. I missed most of this but evidently much of the data is in the SEC filings and annual reports.
> They were asked to provide some optimism for the future. They expect significant growth in wireline, merchant services, and wireless and that two of the three are profitable on a pro-forma basis. They have a blue chip customer base and a strong balance sheet.
> Institutions are interested in the reverse split. There are about 200,000 shareholders some long term and some day traders.
> The CEO search is progressing.
> Will they do a better job of PR? They are doing a good enough job already.
> It seems like there was about $300M cash at the time of the annual stockholder's meeting but now they say there is $265M What's the difference? It might be in the accounting of some of liquid assets that aren't cash or high-grade securities.
> At the annual stockholder's meeting they mentioned there were some nuts to crack and more deals. What happened? They are working hard in a challenging environment.
> Will they make a projection of positive cash flow? No.
> How is employee morale and retention? Attrition is low relative to the industry. Morale is challenged.
> Employee options were not priced but exchanged in August. (I don't know the exact implications of this.)
John then concluded the formal meeting. The motion passed with over 85% of the votes. The questions continued but much of the audience left as did I.
CONCLUSION
I am sure that the folks running the company think they are doing the right thing. I do not agree with them and will be investigating selling strategies related to tax losses and such. The company may do fine. I suspect the employees are doing a fine job. Unfortunately I think the management is managing the short term stock performance and not the long term business.
In the long run a split or a delisting should be moot. Five or ten years from now if the company survives any delisting will have been behind it and the reverse split could be undone. It seems to me that if the company really is growing, the stock will recover eventually, the employee options will become valuable again, and the institutions can buy in then. But all of that is looking long term. A short term focus would seem to be more of an issue if the burn rate was going to eat through the cash before profitability. A simplistic use of the numbers they quoted the company should be good for 20 quarters. My lack of confidence stems from the decisions and emphasis of the management. Much of their focus seemed to be on the short term and gathering other institutional investors. They mentioned that a lot of time and effort went into this decision. I would rather they spent that time and effort on the business side of things.
But that is my emphasis. One thing I like about the market is that we all get to make up our own minds. I suspect that whenever I finally decide to hit the sell button that there will someone wanting to hit the buy button. Of course I won't mind if while I am out there figuring out the best time to sell that the company management proves to be excellent, the economy turns around and they become profitable. No way to find out but to stay tuned.
DISCLAIMER
I have been investing as a long term investor for about 25 years now. I bought both GNET and INSP months and years ago. I am terrible at selling. I also acknowledge that my notes may be incorrect about some items and I look forward to others correcting them or expanding upon them. |
