Buy recommendation:
Good morning to you all. While you were sleeping, we took the liberty
of putting together the following:
At 2:13 AM, the news wires have begun reporting the impending
announcement of a merger or other business alliance between Yahoo! (YHOO)
and Geocities (GCTY).
Neither company has released any official word on the matter but YHOO has
scheduled a conference call with Wall Street Analysts for 8:30 AM, at
which time, it is anticipated the announcement will be made.
Initial reports indicate that YHOO will be paying a premium of
approximately 91% to acquire GCTY. GCTY closed at $75 yesterday (up $3
5/8) while YHOO closed at $335.90 (down $16.65).
With respect to these parties, YHOO needs no introduction. GCTY, on the
other hand, is a "community" site that allows members to build their own
web pages, host them and conduct several other activities within the
Geocities community. In December, GCTY was ranked the #5 most visited
Internet network, with 33.4% of all Internet users visiting the site at
least once.
OUR COMMENTS - Acquire GCTY? TGLO? XMCM? All of them?
Until this morning's conference call is concluded, there is no way of
knowing the exact nature of the transaction. Having said that, we can
presume that such stories hold a great deal of validity and have a track
record of announcing deals before officially announced by the parties.
You all remember our Sunday night, November 22 bulletin, in which we
first reported the AOL/Netscape deal. That bulletin led to the
acquisitions of AOL($88.30), Netscape ($44) and Sun Microsystems
($69.50)
Given the fact the announcement is expected to be made before the
opening, we would expect to see a severe "gap-up" in the price of GCTY
Our experience indicates that such an opening would be followed by heavy
profit-taking and then a brief downward movement, at which time, buying
pressure would resume.
There is no way of predicting pricing levels until the details are
released between 8:30 and 9:00 this morning. Nonetheless, assuming the
current numbers are correct, we would feel comfortable with an
acquisition around $95, though demand could see opening levels much
higher. We'll comment closer to the open but trying to acquire a
takeover candidate after the news is too difficult.
On the other hand, we believe it may be a better strategy to acquire
other similar "community" style web sites, which will no doubt become
more attractive after this latest news. You will no doubt remember from
our AOL/Netscape deal in which we stated the following:
"..This could lay the groundwork for Microsoft acquisition of any number
of Internet powerhouses, from leading portals like Yahoo and Excite.."
In this instance, though our portfolio profited heavily from AOL and
Netscape positions, other portal web sites also appreciated dramatically.
We believe the same situation will unfold for "community" web sites.
The first such community is XOOM.COM (XMCM.NAS), which AGORA readers are
no doubt familiar with. After all, The AGORA Portfolio acquired XMCM on
January 11 at $35.50 and disposed of it last Friday at $41.50. XMCM is
now trading at $39.50 and we believe it will become the target of
speculation, at the least, and quite possibly the target of a larger
company.
The second such community is TheGlobe.com (TGLO.NAS), which essentially
provides the same services as Geocities. TGLO is also trading at
$39.50.
For your convenience, here is a snapshot of financial data
<bold> MARKET EARNINGS
PRICE CAP PER SHARE
</bold>Geocities (GCTY.NAS) $US 75.00 $2.4 Billion -$0.36
Xoom.com (XMCM.NAS) $US 39.50 $520 Million -$1.18
TheGlobe.com (TGLO.NAS) $US 39.50 $407 Million -$0.91
As you can see, the market valuations of XMCM and TGLO are very similar.
We like XOOM a little better because of familiarity and recent deals it
has signed with Infospace, EBay and GoToNet. The company also added on
meaningful management personnel on Tuesday, one of which would be
responsible for mergers & acquisitions. Nonetheless, TGLO also brings
it's own strengths to the table and would equally enjoy any run on
community web sites.
As such, The AGORA Portfolio will attempt to acquire XMCM and TGLO at a
minimum price of $39.00 and a maximum of $42.50 over the next two
business days. Given the extreme volatility in Internet stocks, we feel
much more comfortable in making such an acquisition after having disposed
of our very profitable positions in AOL and Netscape. Otherwise, this is
not a market in which we would want to leave very much money on the
table.
Have a great day.
Regards,
AGORA
agoracorp.com
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