AMZN references from TSC article.
Herb on TheStreet: *Extra* Why
AT&T's Desire to Buy AOL is
Good News for Amazon and the
Rest
By Herb Greenberg
Senior Columnist
6/17/98 11:46 AM ET
By the time my column made it to your computer
screen this morning it was worthless. I hadn't
seen or heard about the Financial Times story
that confirmed this column's speculation of a
week ago -- that America Online (AOL:NYSE) and
AT&T (T:NYSE) had indeed been in takeover
discussions. According to the story, AT&T's CEO
Michael Armstrong wants into the Internet space
in the worst way.
So, why was the column worthless? It's not
because Amazon's stock is up another 6 as I
write this -- adding around $400 million to its
already lofty market value.
And it's not just because the stock is
experiencing the mother of all short squeezes,
as shorts are being forced to return their
shares to their rightful owners. And it's not
just because the Internet is the last good
magnet for all that cash that has nowhere else
to go.
The column was worthless because it missed the
most obvious point about what is really going on
in the Internet space today. And by today, I
literally mean today. It was one thing when NBC
said it would take a stake in CNet's
(CNWK:Nasdaq) Snap!
It's another when AT&T, whose CEO isn't
considered a wacko, says it wants to buy AOL --
and that it wants to do so when AOL's stock,
which has been highly valued for years, is the
highest it has ever been.
This isn't some fish oil company like Zapata
(ZAP:AMEX) trying to buy Excite (XCIT:Nasdaq).
What AT&T is saying is that AOL's high value
today doesn't really matter because AT&T
believes it'll be more worth a heck of a lot
more in the long run.
And it may very well be. But with AT&T putting
its Good Housekeeping Seal of Approval on the
Internet in such a bold way, investment bankers
are likely to get their creative Internet
deal-making juices jump-started.
And they're likely to find a receptive audience
with companies that have suddenly become
afflicted with the "I gotta have one, too"
syndrome. NBC goes after Snap! AT&T goes after
AOL. Who will go after Amazon (AMZN:Nasdaq)? Or
Yahoo (YHOO:Nasdaq)? Or TheStreet.com, for that
matter? (Sure, we're private, but why not?)
Such deals may never happen, but herd mentality
is hardly new. Jeff Matthews of Ram Partners was
an oil-industry analyst back in the late 1970s
when Shell bought out a company whose entire
asset base consisted of California crude-oil
reserves.
"Then everybody else said, 'If Shell is buying
reserves in the ground, that must mean it's a
good idea to buy reserves in the ground.' That
triggered a spate of acquisitions that created a
self-fulfilling prophecy. In hindsight, however,
they were bad prices. In hindsight, U.S. Steel
probably wishes it never bought Marathon Oil. In
hindsight, Texaco (TX:NYSE) probably wishes it
never bought Getty. In hindsight, DuPont
(DD:NYSE) probably wishes it never bought
Conoco."
Yeah, the Internet is different than oil
services, and plenty of these combinations will
make sense. But that doesn't mean there won't be
a string of stupid ones.
Oh, and this morning CNBC reported that AOL said
it's not for sale. Remember, everything's for
sale at the right price.
And don't forget: Corporate America is haunted
by the ghosts of CEOs who, while winning the
battle, lost the war after realizing they
overpaid, underinvestigated and miscalculated
the importance of the deal.
Nothing like a little buyer's remorse to knock a
little sense into a company, while knocking the
wind out of its stock. |
