As I mentioned last night, I have spent some time addressing the points you have made in your last post.
I believe that the combined organizations and enhanced management depth will take this company (and each of its spin offs) much further than could have been accomplished without this merger and the enhanced business transactions that went with it. I also believe that NSI's time to market, their opportunities for growth, their ability to tackle the challenges before them, and their chances for success have all been tremendously improved over what they were prior to the March 21st meeting. The size of the market that is now within their grasp is tremendously larger than it was before the 21st. For what it is worth, I will be holding all of my shares, and where possible I will be adding more to my portfolio.
The short version is that I disagree with your point of view. If you care for the long version, and my explanations why I do, then read my comments below.
Crazy Canuck
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1) Answers.com is by far the most important aspect of the NetShepherd family.
I disagree. The technology that makes Answers.com, KPulse.com, and now ClickChoice.com work as effectively as they do is the most important aspect of the this company. This technology is their long-awaited version 3, and it's this technology that brings out the value in each of the AppCos. I am sure that many other potential uses we have not even contemplated as yet will add to this value as well. It may be helpful to think back on the fact that without NSI's software, Answers.com was something that ideaLab!'s founder Bill Gross, (no slacker at seeing and capitalizing on these things) had valued Answers.com in May at a mere 400,000 shares of NSI. A year ago, that represented approximately $1,400,000 CDN! It's worth so much more now because it has been made so by being part of NSI and having access to their technology.
2) NetShepherd, excuse me, the shareholders of Netshepherd owned 100% of the Answers.com from a purchase made in August, 1999
It recently has become clear that we owned 100% of an under funded, under resourced, and under developed company who had the potential to do great things - if they could only bring their products to market. I don't know about you, however I have owned many other such companies who had tremendous potential who could not bring that potential to market. Many of these companies are no longer in existence, and their shares are now worthless. With the approval of the merger with ClickChoice.com and Mr. Baan becoming Net Shepherd's Chairman of the board I have absolutely no fear that this will happen with NSI. On the contrary, I think that the potential of this company has been magnified exponentially and their time to market has been accelerated enormously.
3) Mr. Baan owned the majority of Clickchoice (I think it was 88%) and while Clickchoice is of value, it certainly pales in relation to the potential of Answers.com.
See the answer to point two. I guess the poor potential of ClickChoice.com eluded the producers of Dateline when they featured this company on one of their specials. As the last press release mentioned, the movement towards bringing the Internet to the Television sets around the world has heightened the need for an effective filtering and tracking capability. This market is huge, and it needs a way to effectively screen out the bad side of the Internet from our children. This is exactly what Click Choice is doing - among a host of other things.
4) Mr. Baan, in order to further his own B2B strategy with the Vandenburg Group, and primarily as a next step for his BAAN Sfotware company, needed to get his hands on answers.com
Even if you were exactly right on with this point, my response is so what!? This describes only why Baan is interested in NSI. It doesn't mean that is against NSI's interests. That's like saying that Cisco's last acquisition wouldn't have been in the best interests of the acquired company because Cisco was interested in the deal for what it would bring to Cisco. I mean, nobody expects anyone in business to be an altruist. We're interested in what the deal can bring to us, not in making sure the other party in the deal doesn't see an advantage for them in it! Mr. Baan is building an integrated offering of companies that will provide solutions to challenge corporations face when they are attempting to provide the right information to their knowledge workers. The technology that Net Shepherd and the rest of the Application Companies offer (as well as other companies who will be licensing this technology from NSI) fits well into the integrated network of companies he is building. I strongly disagree that this integrated offering weakens NSI.
5) Answers.com was slated to go for IPO in March, 2000 before a deal with Mr. Bann was contemplated. This was confirmed as a result of a Due Diligence meeting held between Denise, Barry K, Crazy_Canuk and NetShepherd in August 1999.
How many growth companies that you know of are able to project 12 months out to the exact month when they will be going to IPO on a major exchange. I know of four companies who have IPO target dates that are estimated to be six month out, however they are not set in stone. For that matter, the date that was given to us by the company was thrown out almost immediately after they had just signed the deal to acquire Answers.com from idealab!. They didn't even have a management team in place at that time. Forget the fact that NSI's development plans for their technology had been behind schedule since that time - and stayed that way until Mr. Baan injected funds and assistance to move the development work onto a fast track. One thing I do know for sure is that you can't IPO a non-viable company. Bill Gross (the founder of idealab!) said himself that Answers.com was worth little without NSI's technology. As NSI wasn't finding itself able to meet its own schedule on the development of version 3 (which was so critical to its next moves), then by default, Answers.com was still not able to realize its potential or even close revenue deals. Now if they did happen to have that IPO date confirmed, it would have made a very unimpressive IPO. Contrary to your point of view, I am confident that with Vanenberg, Baan, and the added capital and programming resources they have injected into the company all have contributed to solving that problem. Doing an IPO to meet an arbitrary schedule regardless of whether the company is ready or not would be a very dumb move.
6) Through the IPO, it was going to be attempted that Answers.com would be valued at close to $100 Million.
Those were numbers that were discussed a year ago. I used them in my calculations when I was projecting possible share appreciations. I always knew that those totals would be subject to a final share total count, and a set IPO price for the shares. But again, that discussion was so far in advance and the situation was still so new that it is ludicrous to think that the company could / should be held to that.
7) If that IPO had taken place, by now if the timing had of been kept, there would have been an opportunity for a significant cash infusion into Net Shepherd, thereby removing the need for a cash infusion by Mr. Baan.
Yes, if the technology had been ready earlier and they could have signed some good revenue deals to provide the cash flow that they needed then they would not have needed anyone's help. But over the past few months, I became much more aware of the cold hard facts that the technology wasn't ready, the hardware was having major outages, and their corporate prospects were getting tired of waiting. The potential was staggering but they were having to face real world hurdles that were effectively slowing them down. Don't blame Mr. Baan for that. On the alternative side, ask yourself what would have happened had Mr. Baan not come up with the cash and assistance to move the development work along, and carry the company through these past few months to the point where they are very close to going live.
8) Initially, there was talk of having about 12 Million shares issued in Answers.com, now we are finding out over 33 Million shares exist.
The ownership position of Net Shepherd stays roughly the same at over 77%.
9) A private placement has been recently completed for shares in Answers.com by insiders of Answers.com and Netsheperd. These shares were being valued at $0.75US! Yes, that's right, 75 cents. This comes from the Valuation and Fairness Opinion produced by Yorkton for NetShepherd.
I know of a Vice President of another company from Calgary who received management options at approximately $1. After a relatively short period of time, those options were worth $250 before he cashed out and became a developer. My point is that this is a common practice in start up companies, and isolating one company and complaining about it is unfair.
10) In the Valuation and Fairness Opinion, Asnwers.com main comparable, AskJeeves was not even used in calculating parameters for market valuation. Does this seem right? For your information, Yorkton projects that the market valuation of Answers.com is around $30 Million. Let's see, that means that with 33M shares outstanding, we might get a $1 per share in an IPO. Now, if this is right, do you think you would be investing in Net Shepherd? Now, if this is wrong, should it have not been corrected in the Fairness and Valuation Opinion by Yorkton?
Considering that NSI was having difficulty in getting its ICMS version 3 out, (which was critical to making something of Answers.com and which ideaLab! valued at about $2 million in May!), Yorkton had to assign a market value to Answers.com as it was, not as it could be if NSI successfully completed their ICMS version 3. I will grant that last year, I was pretty upset with Yorkton's valuation of another company that you and I had both invested in. I know you were upset as well, because we discussed it at length about a year ago on that company's threads. It is now a year later and I have to give them the credit that although they were grossly off base, maybe they were not as far off as I thought they were at the time. Now there are many factors that have come into play with that company, but that is a discussion for another day and another thread. Why Yorkton did not use the AskJeeves comparable is open for debate. However, I believe that when the valuations were being done Answers.com was looking for, and needed additional financial support. They were also looking to NSI to deliver to them a workable 'cutting edge' technology to meet their customers' demands. They were also still in the process of building their core management team and as such did not rightly deserve to be directly compared to AskJeeves. As I have stated many times, I am not an analyst - nor do I aspire to be, but after reading that Yorkton used four valuation methods to draw their conclusions, it took away much of my concern. These valuation methods were Precedent Transaction Analysis, Market Value Analysis, Discounted Cash Flow Analysis, and Intrinsic Value Analysis. The explanation of how these methods were used can be found in the information circular that the company sent out prior to the special meeting.
11) If you consider that maybe Answers.com should be valuated at closer to $100M, rather than the $30M Yorkton came up with, then Mr. Baan would have gotten significantly less shares for the Clickchoice merger, or he would have had to place alot more money into NetShepherd.
To restate part of my answer above . . . "Answers.com was looking for additional financial support, was looking to NSI to deliver to them a workable 'cutting edge' technology to meet their customers' demands, and who were still building their core management team did not deserve . . . " I also believe that ClickChoice.com was further along their development cycle than Answers.com was when the valuations were completed.
12) In the two measurable valuations methods within the Fairness and Valuation Opnion, NetShepherd was valuated at 68 to 138M (before the Enhanced Business Transaction), and 111 to 162M (before the Enhanced Business Transaction). Clickchoice was valuated at 51 to 98M. However, within this Enhanced Business Transaction, Mr. Baan received 2.22559 NetShepherd shares for every Clickchoice share, does this seem reasonable to you? And these 2.22559 shares do not include the cash infusion he made, of which he got shares at 3 each.
No one can tell 'anything' from an exchange ratio that is taken in isolation. Were the total shares counts the same? How mature were each of these companies etc., etc.. Once again, given the challenges that the company had faced over the past year, I really don't think that Net Shepherd was in position to demand more. In order to capitalize on their opportunities, they needed help, they needed money, and they needed the connections and experience that Mr. Baan could provide them. Being mad at Mr. Baan for being in this position to help them and his organization at the same time is wrong.
13) The insiders of NetShepherd are currently being rewarded through share options and actions in private placements that do not require our approvals. And, these options and private placements are in the jewel of the NetShepherd portfolio! They know that a $0.75 share in Answers.com is MUCH more valuable than a $5 share in NetShepherd. But why would they think that if Answers.com is only worth $30M? Because it isn't worth that little, it's worth alot more than that.
To restate . . . All of the management of NSI have taken lowered salaries in order to increase their option positions in Net Shepherd Stock. If you are upset at this, then I guess you must be pretty pissed off when you look at virtually every growth company that has ever gone public. You also seem to have forgotten that last year, Net Shepherd could only place $1 million of a $5 million private placement. The big money and institutional investors wouldn't touch this company with a ten foot pole. The management of this company had faith in the company, and had their own money on the line. Now, when things look more promising (after Mr. Baan's assistance to get the companies back on track), you are slamming him and them for this.
14) Mr. Baan effectively owns NetShepherd, Answers.com, and all the others since he now has true majority ownership. we now have shares in a company that collectively we have NO say in.
The special meeting was called and the decision to do so was dependant on a majority of the minority shareholders approving this deal. I don't know if you were at this meeting, however when the vote was called, it was unanimous. There was not one dissenter in the crowd! It goes without saying that if an investor does not trust that the management of any company has their best interests at stake - then my recommendation to that investor would be to sell their holdings in it.
15) Watch out for more potential private placements in the coming months. Probably used for "speeding products to market"! Better to have a lower Net Shepherd share price for that as well.
I know of one other stock I hold that has an investment in a hotly anticipated IPO. This IPO has had approximately six levels of financing prior to coming to the NASDAQ National Market. Each time there was a private placement, the money was used to strengthen the company through an acquisition etc. This IPO will be huge, and the shareholders of the parent company will be seeing the benefits of these injections of cash in a big way.
16) Things have gotten pretty dilutive. All in all, Mr. Baan now owns just over 50% of a company that has a market value of $4 times 70M shares = $280M, representing about $140M. Before, he had 88% of Clickchoice ($70M), $7.5M cash and 3.3M NetShepherd shares = $13M for a total of $90M. So, $90M versus $140M, which do you think is fair as his return on investment. He basically should own a third of the company, not a half.
You have referenced only $7.5 million cash being put up, but you have missed that on top of the initial $7.5 million, there was an additional $9 million for a total of $16.5 million in cash injected into the company. $9 million of that being directly from Baan, and the first $7.5 million was from Vanenberg. It is important to emphasize the fact that the combined entity is much stronger than each of the weaker pieces. As a result, dilution is not an issue here. I am confident that this argument has been addressed in my earlier statements. If NSI and Answers.com and the rest of the group were rock solid and had been further along in their development cycles before Mr. Baan came along - then I would have agreed with you on this point. The truth of the matter is that because of their software development challenges, NSI and Answers.com stood the risk of experiencing a slow "death by a thousand delays" if they didn't move fast. I have now come to the conclusion that although I invested in the company based on its potential (and I wrote extensively about what it could be and where it could go), as the delays became longer and longer, I recognized that they needed to realize that potential quickly and to accelerate this development they needed help. About the time that I came to that realization, Mr. Baan was stepping up to the plate. I assure you that although I was initially disappointed that the company couldn't do it on its own, I soon began to fully appreciate what Mr. Baan and his organization were bringing to the table, and the connections that NSI has now because of them. I can tell you that I am now very pleased to see this deal happen and the companies move forward together.
17) Further dilusion of Answers.com and the others will take place, just wait and see. Thereby leaving us with even less in this company and AppCos.
Given the tough and unforgiving spotlight that the NASDAQ brings, it sure sounds good to me to have a much stronger company with much greater chances of survival, International contacts, and an extremely solid base of support. However, based on your comments, I will say that if you still feel that your investment has been diluted and it has been to your detriment then my advice is to sell your shares or take a short position on the company - If you haven't already done so.
For the record, I plan on holding onto all of my shares, and I look forward to enjoying the ride as the company realizes its full potential.
Crazy Canuck |
