No problem Geoff, glad to oblige, here's your post:
Geoff on SH asked to have his post re-posed here.
Delphie, thanks for bringing Agora's post over here. I see that it was in reply to a post by KrisCo, who has been thinking along
the same lines that I have, researching the effect of a subsidiary's going public upon the share price of the parent company.
I regard Agora's analytical skills very, very highly. I also assume that Agora may have access to factual information regarding
SYD's plans, to which the rest of us are not privy. So, when Agora throws cold water on the "Sideware Corp. IPO" theory, I
figure there's a real good chance that this means it ain't happenin'.
Actually, though, the thing that really blew my mind in Agora's post was the following: "Secondly, we don't believe Jay
Nussbaum et al would ever agree to running an SYD subsidiary. If they are on board, they want to run the complete ship."
Does this imply that Oracle's involvement with SYD is extensive, or what!!!????"
On the assumption that Agora might NOT be trying to give us an opportunity to "read between the lines" of his post (i.e., giving
us logical reasons why an IPO of Sideware Corp. won't happen, when the real reason for his post is that he KNOWS it won't
happen), I have a few comments on the logical aspects of what he said:
First, IMO, there are two utterly and completely different reasons for a company to do an IPO for what was previously a
wholly owned subsidiary. To a certain extent, Agora collapsed these two reasons into one. The first (and, until quite recently,
more traditional) one is the possibility that the spinoff can operate more efficiently as an independent entity than when it was
shackled by the larger corporate structure. This is the "AT&T spins off Lucent" example. I agree with Agora that this does not
resemble the SYD - Sideware Corp situation, because AT&T still had enormous value in its own right after spinning off
Lucent, and because Sideware Corp. is not by any means burdened by a bloated corporate bureaucracy in the form of SYD.
The second motive for doing an IPO is purely financial, and has (IMO) nothing to do with releasing a subsidiary from the
shackles of a larger corporate bureaucracy. It's ALL about raising money and making the owners of the parent company rich.
(In this case, WE are the owners of the parent company, so this is a good thing.) This is accomplished by taking advantage of
the peculiar dynamics of the IPO process. I'll describe those dynamics in a later post.
After noting that IDTC's spinoff of NTOP is a great example of an IPO which resembles the SYD situation (I'm delighted to
know about another example and will have a bit of a look at it when I get the chance), Agora gives his reasons for thinking that
SYD will NOT follow the IDTC-NTOP example. He says:
"First, such a spin-off would essentially involve the part of the company with the greatest value and leave the parent with
nothing more than an R&D facility in Vancouver .... Remember, an IPO is usually a small subsidiary and not the heart of the
corporation." The first part is partially accurate, IMO, but not completely. The parent corporation would be holding
somewhere in the very general vicinity of a hundred million U.S. dollars from its sale of NOT ALL BUT A SMALL
PERCENTAGE of its formerly 100% ownership in the subsidiary. On that basis alone, shares of the parent would have as
much cash value as their current market value. More importantly, the parent corporation would still own the majority of the
shares in the subsidiary, which would have an enormous market value.
When Agora observes that "an IPO is usually a small subsidiary and not the heart of the corporation," this is true only to the
extent that we are talking about publicly traded companies spinning off a part of their operation. Actually, many of the internet
IPO's have involved companies which were initially in private hands, totally owned by the individual(s) who created the
company and maybe a venture capitalist or two, who had obtained a percentage in exchange for financing. When those
companies go public, the private owners don't have anything left except the proceeds from the IPO, and ownership of the
majority of the shares in the new company. The only difference here, IMO, is that in our case ownership of the new company is
currently in the "hands" of a publicly traded company (SYD.VSE), rather than in the hands of a few private individuals. There is
absolutely no inherent reason, IMO, why SYD.VSE could not turn itself into essentially a holding company.
Agora points out that Nussbaum is on the board of SYD, which would no longer be where the action was at, but that's no
problem. The new company will need to have a BOD, too. I nominate Jay. Anyone second the motion? (Bang of gavel.) Done.
If Nussbaum's own shares of SYD rocketed from $2 to $20 because SYD now owned the large majority of shares in a
newly-IPO'ed company, which was traded on the full NASDAQ, he'd be just as happy as the rest of us. Actually, he'd be a
whole lot happier if they did this the way I think they should. If the Oracle Venture Fund invested, say, $10 million in exchange
for, say, ten percent of Sideware Corp. in a PRIVATE TRANSACTION BEFORE THE IPO, and then Sideware Corp. did
a successful IPO, Jay's employer would be, say, roughly a hundred million dollars richer overnight. Maybe more. Even by Jay
Nussbaum's standards, that's a significant feather in the corporate cap. Anyway, my main point is that whatever role Nussbaum
and Oracle can play with SYD, they can also play with a spinoff. It's all just a matter of paperwork. Oracle probably still has
more attorneys than SYD has programmers, even with all the recent hiring, so I think they could find a way if they think it's
worth doing.
Agora then presents a competing theory, which is (IMO) really only a variant on the Sideware Corp. IPO theory. He suggests,
"Given the fact Sideware USA is now the meat and Sideware Canada is now the de facto subsidiary, would it not make more
sense to roll the Canadian company into the US company and re-package it for a US exchange?" IMO, Agora leaves it very
vague as to just how you would go about "rolling" the Canadian parent "into" the U.S. subsidiary. What would that mean?
Currently, I own part of the Canadian parent company. What exactly would I own if the Canadian parent company were
"rolled" into the U.S. subsidiary, which isn't even publicly traded?
The "Sideware Corp. IPO" theory offers an explicit explanation for exactly how this very same process could occur. In the first
phase, an IPO for the U.S. subsidiary would raise a boatload of cash. In the second phase, the parent company would cease
to exist as a separate entity, just as Agora proposes. With Sideware Corp. being a publicly traded, NASDAQ-listed company,
this could be very easily and fairly accomplished. How? SYD declares a dividend. For every share of SYD you own, you
receive a proportional share of whatever cash is left in the treasury, plus a proportional share of SYD's ownership of Sideware
Corp. For example, if a big shooter like Whaler owns one percent of the outstanding shares of SYD, and SYD owns
40,000,000 shares in Sideware Corp., Whaler receives 400,000 shares of Sideware Corp. After this, Whaler's shares of SYD
are worthless, because there's nothing left of the parent company except a shell on the VSE -- which is as common as AOL
promotional CD's. But Whaler's a happy guy, because his 400,000 shares of Sideware Corp. are worth a lot, and he can use
the cash from his dividend to throw a big party for all of his friends from StockHouse.
Actually, my notion of how the parent company would be phased out is pretty vague. I don't know the legalities of how such
things are done. But my main point is that it would be a whole lot easier to do, if the subsidiary had already become a publicly
traded company in its own right.
I agree completely with Agora that SYD's "personnel, money and partners are way too big for the VSE. This company is
headed for bigger and better things in the US." The only thing we disagree on is how they might get there. I think an IPO for
Sideware Corp. would be a logical route, with the not insignificant side benefit of bringing in a boatload of money. But the nice
thing is that all of these scenarios -- both the "Sideware Corp. IPO" theory and Agora's concept -- are not just "Win-Win"
scenarios -- They are "Everybody wins!" scenarios. Not Win-Win, but Win-Win-Win-Win-Win etc. scenarios.
Focus to Win-Win-Win-Win-Win!!!
Let me emphasize again in conclusion that I am not a trained professional in any aspect of business or corporate finance, I am
not a financial advisor, and I think there's a real possibility that Agora knows what he's talking about (even if I can find a few
gaps in the reasoning he presents to support his prediction.) Agora presumably knows a lot more about SYD's business plan
than I do, so he's probably on target. But I still find the possibility of an IPO for Sideware Corp. to be plausible and very
attractive. If there are compelling arguments against it, I don't think Agora has stated them yet.
Best regards to all, and especially Agora, whose contributions to the collective effort have been enormous and continue to be
greatly appreciated.
Geoff
P.S. I don't have posting privs at SI, but would appreciate it if somebody would copy this post over there. Greetings to
KrisCo, sounds like we're both on the same wavelength!
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