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Technology Stocks : Compaq
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To: Kenya AA who wrote (45210)1/26/1999 11:21:00 AM
From: Obewon  Read Replies (2) of 97611
 
Compaq spins off AV to shareholders finally responding to changing market fundamentals.

Compaq realizes that AV is no longer a top tier Internet site and needs content. To get the content it can:

1) develop it (not practical in today's hyperspeed races)
2) buy it (would cost too much at today's Internet prices)
3) deal for it (very possible but might complicate other corporate strategies)

Now, # 1 is not practical and #3 diverts attention away from a core business that actually currently makes money. As for #2, CPQ is a >$50 billion dolar company so people assume that it could easily purchase content even at these prices.

However, conspicuously unmentioned is the fact that most of the rich Internet valuations are being based on the value of the stocks that are involved in the deal. For example @Home paid a huge amount IN STOCK for all of Excite. Now I may be a bit out of the mainstream but @Home is a money-losing, cash flow negative, and overvalued company. It uses its stock (which is basically worthless on a fundamental basis) to buy an Internet company (which is also has very little fundamental value apart from a brand name).

Getting back to the point at hand. CPQ spins off AV which pleases shareholders and lets management deveote their attention to selling computers and designing new products. AV gets awarded a huge multiple that allows its (nearly worthless) stock to be used to buy other (nearly useless) Internet companies to get the content they need. The only ones who get hurt are the people left standing sometime in the future when the music stops, and no one right now cares about them.

Sounds like a WIN/WIN situation to me. ;)

OB
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