Oops, Red beat me to the punch so let's try this.
March 29, 1999
Heard on the Street
Compaq Is Bullish on Future
Of Its Shopping.com Unit
By JOHN R. EMSHWILLER
Staff Reporter of THE WALL STREET JOURNAL
You know the old Wall Street saying: Past performance is no guarantee of
future results.
Well, that is what Compaq Computer Corp. seems to be banking on with
its recent $220 million purchase of Shopping.com. The past performance
of the Corona del Mar, Calif., online retailer: Millions of dollars in losses, a
founder who was accused of stock fraud by the Securities and Exchange
Commission and an underwriter accused of manipulating the company's
stock price.
A Compaq spokesman said the Houston personal-computer maker, the
world's largest, was "very aware" of Shopping.com's past problems.
However, he said the company believes that Shopping.com
(www.shopping.com) has the technology and name identity to be folded
successfully into Compaq's Alta Vista Web site (www.altavista.com), as
part of a bid to become a bigger cyberspace presence. Mike Rubin, vice
president and general manager of the Alta Vista unit, says Shopping.com
has the potential to be "big, big, big, big."
Some analysts are a bit more reserved.
Shopping.com and other Internet purchases
"look expensive today," says Daniel T. Niles,
an analyst at BancBoston Robertson Stephens. The real question is how
well Compaq can leverage the site to bring in revenue. If all goes well, the
deal "could look pretty good."
Even if it is a bust, however, it won't hurt Compaq much: With Compaq's
financial resources and more than $50 billion market capitalization, the
money spent on Shopping.com could be considered a "rounding error,"
says Ashok Kumar, an analyst at Piper Jaffray Inc.
What is clear is that Compaq hopes to capitalize on investors' interest in
Internet stocks by selling a minority stake in Alta Vista with an initial public
stock offering as early as this summer. Analysts estimate the unit could be
valued at as much as $2 billion, a potential boon to Compaq shares, which
have fallen 8% in the past three months even as the broader market has
climbed 10%.
Shopping.com hit Compaq's radar as it looked to turn its Alta Vista search
site into a Yahoo-like Internet "portal," providing online data, entertainment
and shopping. In it, Compaq saw a way to quickly infuse Alta Vista with a
consumer-oriented e-commerce service, and gain the technology for
conducting online sales, tracking and managing deliveries. Indeed,
Compaq Senior Vice President Rod W. Schrock called Shopping.com's
technology "very impressive" and "the lead advantage" to the purchase.
The online retailer's ability to hit the jackpot is a tale of corporate
endurance that perhaps could take place only in cyberspace.
Shopping.com's founder was Robert McNulty, a Southern California
retailing entrepreneur. His idea: to create a sort of Internet department
store with a huge array of items. While the company wouldn't keep any
inventory, it would set up supply relationships with merchandise
wholesalers, who then would ship the items to customers.
In 1994, the SEC sued Mr. McNulty and four others in New York federal
court for allegedly misusing corporate funds and putting out false public
reports at previous companies where Mr. McNulty was chairman. Without
admitting wrongdoing, Mr. McNulty agreed to an injunction against
violations of federal securities laws and a $70,000 penalty -- waived
because of his "demonstrated inability to pay," according to an SEC news
release.
Mr. McNulty didn't return repeated calls seeking comment.
When Shopping.com went public in November 1997, its stock didn't
qualify to trade on the National Association of Securities Dealers' Nasdaq
Stock Market. This meant it was relegated to the NASD's less prestigious
OTC Bulletin Board, which "put a stigma" on the stock, says Cery Perle,
former president of Waldron & Co., the Irvine, Calif., brokerage firm that
served as Shopping.com's underwriter for the public offering.
In March 1998, the SEC temporarily halted trading in Shopping.com
stock because of evidence of "manipulative conduct." Though an SEC
trading halt officially lasts just 10 business days, it often is a death knell for
a small-company stock. Of more than three dozen stocks halted over the
past three years, only two have resumed trading on the Nasdaq or the
Bulletin Board, NASD officials say.
One of those two was Shopping.com.
NASD officials say the rules regarding trading resumptions on the Bulletin
Board are designed to deal with cases in which a company doesn't have
adequate or accurate public financial statements -- not in instances
involving suspected manipulation.
In September, the SEC filed suit in a Los Angeles federal court, alleging
that in the weeks before the trading halt Waldron and Mr. Perle
manipulated Shopping.com stock price from its IPO price of $9 a share to
more than $32 "despite the company's dismal financial performance."
Mr. Perle strenuously denies the allegations and says he will fight them. He
blames the stock's gyrations on traders, known as short sellers, who profit
when a stock's price falls.
Mr. McNulty resigned as Shopping.com's chief executive in June, though
he stayed as a consultant. He was a point person in the Compaq deal. On
Dec. 14, a Compaq vice president contacted Mr. McNulty to discuss a
"potential alliance" between the two companies, according to a
Shopping.com SEC filing. (The deal was announced in January, and
closed earlier this month.)
Mr. McNulty's successor as CEO lasted only a few months and was
replaced Jan. 1 by Frank Denny, who already was serving as
Shopping.com's chairman.
Mr. Denny is the first to concede the road has been bumpy. For the nine
months ended Oct. 31, Shopping.com reported a loss of $18.9 million on
sales of $4 million. At times last year, the company was so short of cash,
Mr. Denny says, there were "weeks we didn't know if we could make
payroll."
--Gary McWilliams contributed to this article. |
