I'm a bit puzzled on how the talked about acquisition of LYCOS by CMGI will affect CMGI's valuation. Can anyone add their thoughts about this?
I lived in Hawaii during the real estate explosion in the 80's where you could put a new mail box at the end of your driveway and ask $25,000 more for the improvement. Want a higher number? Just tile your front hall - that added $30-40K to your asking price. Had an ocean view? Well, you could get just about anything you asked for your property within reason (as long as it wasn't more than 4 times what you paid for it 3 years earlier). Talk about a bubble!
Although a lot of Japanese buyers were mislead enough to pay cash based on comparing Hawaii property values to Japan property values (if this property was in Japan, instead of paying $1.2M for it, I would have to pay $5.0M) a great deal of the property traded like internet stock combinations - just on paper and little or no cash.
So you'd sell a property on an agreement of sale ($10K down, interest payments only, and cash out in 5 years), and your buyer would sell it to another buyer 3 months later on a sub-agreement of sale, who would sell it to another buyer a year later on a sub-sub agreement of sale, etc.
The problem, of course, occurred 5 years down the road from the initial sale when the market turned and the last buyer didn't have the cash to take out his seller, and that seller didn't have the cash to pay to his seller, all the way back up to the original seller of the property.
The banks didn't care who sold what to whom. They looked to the original holder of the note (the first owner) and said "Pay up, or give us the keys." BTW, the banks ended up getting a pot load of keys...
So how does this affect CMGI? I don't see CMGI's optimal exit strategy for its investments as buying those investments back by doing a stock for stock deal - and make no mistake about it, they don't have the cash to do it. Sort of like buying beanie babies (actually trading them )with your kid sister (trading portfolio holdings in the family as it were). When you actually put a $400 Princess to the market, you find you can get $7.00 in cash for it, two years after the initial trade.
IMO, CMGI's optimal exit strategy for its holdings has to be externally sourced - selling (for cash or stock) to a third party whose valuation is established by the marketplace. But eating your own young, as it were, isn't a convincing enough exit strategy to show there's a market at an implied valuation, at least to me.
What a puzzle, to be sure. Would enjoy hearing from other threaders on this matter.
Best regards and what's the answer?
Mark A. Peterson |
