As promised I would like to discuss a number of issues from the 10-K. There seems to be a LOT going on with this company, a lot more than we have discussed here. I'm not sure it is all good. That's just an honest question on my part. What is good is that they should be realizing great revenues from their core focus, the intranet business.
What is also good (on a preliminary look) is that management is very professional--they would have to be to pull off all this growth and restructuring in a short time--and they are mainly money people interested in techology investments rather than technology people interested in money.
Also good: "The Company is exploring alternatives to maximize the value of its search technologies and know how. The Company believes these efforts may result in the formation, together with third parties, of new business units or joint ventures involving substantial investment of funds and/or technology transfers, the acquisition or disposition of product lines or businesses, or other initiatives."
Also good (for the bottom line): Under investments, The Company owns 253,808 shares of Yahoo! Inc.
Not sure if good or bad: There are some acquisitions or investments that would fall into the "is this strategic or not, it's hard to tell just now" category. Indeed it would appear that the company is something of a diversified holding company, and heavily into hedging its bets. Good but confusing. They own a 70% stake in a company which publishes "MacRAE's Blue Book", an industry directory. There is a mention of something called Internet Mall but I don't know if this is in fact the same Internet Mall as the popular internet commerce site.
Some of their relationships were quasi-terminated as a result of their de-emphasizing the retail Internet search engine aspect. What appears to have happened is that they 'got out' of investing in some companies but as a substitute have still committed cash to them on a loan basis. Open Text has loaned out money at interest rates in the neighbourhood of 7-8%...this is a bit odd but I suppose also means the financial structure of the company is "conservative" in that they will be getting a solid return and not taking any risks in non-strategic directions.
Also, the final termination pay and costs associated with the closing of some of their offices and restructuring will be wrapping up just about now. Which means, again, that while costs are being cut, there is probably going to be a loss reported in the current quarter, perhaps greater than expectations, but the end result should be that in later quarters costs have been brought under control and the path for healthy earnings will have been cleared.
Under the "bad" but "maybe good for shareholders": It's a pet peeve of mine seeing a lot of juicy options being given to executives. There are a bunch of options under the 1995 option plan which have an average strike price of over $12...the company has proposed, subject to shareholder approval, that these options be converted into new ones with a strike price of just over $4. There are also a small number of options being issued to current directors with a price of $6.875. These two numbers probably explain the HEAVY support level at $4 1/4 and something of a support level just below $7. Changing the strike price to $4-something is supposed to give management incentive. I wonder.
I don't however, mind the fact that the president receives a good salary etc. The Board seem to be professional money people and know what they are doing.
Here is a thought: the 10-K justifies the Option Exchange proposal by appealing to the fact that share prices have declined substantially. What if the share price went up? Could they then use that excuse? This is why I believe that a number of tricks have been used to lower the price of the stock until they can get approval for the option exchange. Maybe I am paranoid but if the price of the stock was to hit $11 on the day when they are supposed to approve the Option Exchange program using the rationale of a low stock price, they might look a bit foolish if many of the existing options are priced at $11-12. They look less foolish saying the stock price is low if it is in fact kept low, at least until approval is given.
Anyway, sorry for the long ramble. Others with more knowledge or experience reading these reports might want to clear up a few things.
Bottom line is I think they are managed by some very solid money people, and are going to derive lots of revenues over the next few years while making intelligent investments and hedging their bets.
At the same time, any shareholder (IMO) has the right to be unimpressed with the big option party. Jenkins received about $3 mil worth of options when he was named as president, too. He must be one hell of a guy! (He is 36.) |
