I know there is a link earlier in the thread to this story...but here it is anyway.
Party On!
A Web start-up backed by a high-powered cast of
Wall Street financiers takes a curious route to the
public markets.
By Mark Gimein
The dramatis personae reads like the cast for a
sequel to Oliver Stone's Wall Street: There's the
Wall Street wunderkind who made it to managing
director of Morgan Stanley before his 30th birthday.
There's the lawyer who started his own
leveraged-buyout boutique and married a national
waterskiing champion. And there's the Canadian
financier who was the king of corporate greenmail –
until his precariously leveraged empire crumbled, one
of the last casualties of the go-go '80s.
These aren't characters in a movie; they're members
of the board of directors at iParty, a New York-based
start-up. As the name implies, iParty plans to sell
party goods – cakes, balloons, favors, flowers,
entertainment, catering services – over the Web,
using both national and local companies for
fulfillment. Content for the site is being designed by
iVillage.
Among the more familiar members of the iParty cast
is New York financier Robert Lessin, chairman and
CEO of the online investment bank Wit Capital and
an investor in a number of Web start-ups. Less
known, but no less well-connected, is Byron Hero, a
lawyer and investor who bought control of struggling
hosiery maker Danskin in 1986, then turned it
around, took it public and eventually got tossed out
by the company's board. The third player is Samuel
Belzberg, a Canadian corporate raider who was allied
with T. Boone Pickens and Drexel Burnham in some
of the great 1980s takeover battles.
On the surface, iParty looks like any number of
start-ups planning to leverage the efficiencies of the
Web. But below the surface, iParty looks like
something else: a company started by financiers to
take swift advantage of Wall Street's fascination with
the Web.
Lessin, the company's chairman, Hero, the CEO, and
Jim McCann, founder of 1-800-Flowers, incorporated
iParty a year ago. Hero says the group saw a chance
to grab a piece of a highly fragmented business at a
reasonable cost. "It's not the kind of business in
which you take a lot of money and wave it over a
Bunsen burner," he says.
What makes iParty an oddity is how it decided to
finance itself. Skipping the usual route – venture
funding, followed a few years later by an IPO – iParty
sought a quicker road to riches. The company last
year engineered a "reverse merger," sliding iParty's
operations into a dormant company called WSI
Acquisitions.
WSI, a remnant of a long-forgotten Belzberg-led
buyout, had $2 million in the bank, stock traded on
the Nasdaq Bulletin Board system – "the pink sheets"
– and no operations. In the merger, Lessin, McCann
and Hero got 50.1 percent of the combined company,
which took the iParty name. Belzberg and Ajmal
Khan, a Vancouver investor and frequent Belzberg
ally, got board seats.
Merging your business into a public shell with stock
traded on the Nasdaq Bulletin Board, the lowest rung
of the equity market, isn't a highly regarded tactic on
Wall Street. It's a method for moving a company into
the public markets quickly, cheaply and without the
disclosures and scrutiny that accompany an IPO.
Hero says that in the next few months iParty will file
a registration statement with the SEC that will make
more data about the company public. His plan: List
on the American Stock Exchange. That's a strange
choice for a Net company – most trade on the
Nasdaq National Market System – but it would be an
upgrade from the Bulletin Board and would improve the stock's chances of
attracting investor attention.
Hero, who says the plan to merge with a shell originated with Belzberg and his
associates, contends the strategy shouldn't hurt the company.
"Historically," Hero says, "there's been some stigma attached to reverse mergers.
But this is a company that investors will know is clean. It's got some good people
involved. It's not some anonymous shell."
Maybe so. But the track records of the people involved with iParty aren't
unblemished. While Hero succeeded in turning around Danskin, for instance, the
company's stock went into a tailspin almost immediately after a 1992 public
offering. Belzberg once specialized in buying up large blocks of stock and getting
companies to effectively pay him ransom so he wouldn't take over. In one case,
Belzberg's holding company, First City Financial, had to pay back $2.7 million after
the SEC charged the company with illegally concealing the size of its holdings in
Ashland Oil.
As Hero admits, a public stock gives investors instant liquidity and lets them cash in
without waiting for an IPO. If the market for Net stocks stays as hot as it has been
recently and iParty's stock rises, it will not be a big surprise to see a seasoned
player like Belzberg take the chance to make a few million dollars with all
deliberate speed. |
