Article about GNET/INSP and Paul Allen in today's Seattle Times (also AMZN and MSFT in same article....)
KLP
seattletimes.nwsource.com
Sunday, July 30, 2000, 12:00 a.m. Pacific
Greg Heberlein / Times Staff Columnist
Wall Street Recap: Amazon 'bad cop' leaves with green
The boy with cold hard cash
Is always Mr. Right
Cause we are living
In a material world
And I am a material girl.
- Madonna
Speaking of money...
Did you notice the chief operating officer at Amazon.com jumped ship to become chief executive of a company about a third as big?
It's not every day that a 42-year-old gentleman who knows the ways of the business world walks away from $1 billion. Remember, that's what they were talking about 13 months ago, when Joe Galli landed at the Seattle company that was once, but no longer, regarded as the jewel of the emerging Internet. Besides sweet cash compensation, Galli would get stock options that could make him a billionaire someday.
Why would a sane human being turn his back on a billion bucks? In this case, Galli professed absence from his children as the driving force. They live in Baltimore and his new job, with VerticalNet, is in Horsham, Pa. No question the poor soggy souls who call slimy Seattle their home can understand why someone would high-tail it to Horsham.
Another story emerges, if one can accept published reports. Amazon.com Chief Executive Jeff Bezos is celebrated for his loosey-goosey style of management. Bezos was much like the good cop. Galli, accustomed to a much more structured environment, quickly became the bad cop in the Seattle headquarters.
As usual, the anal things got in the way. When staff cuts were mandated, Galli slashed the work force regardless of seniority. Internal transfers, which might have been possible, weren't an option.
More importantly, Galli, to save a buck (from his eventual billion?), pulled all the pain relievers from the shelf. This was an environment where shifts far longer than eight hours often were the norm, and an occasional aspirin helped get a worker by. In the ensuing uproar, Galli agreed to restore the pills, but they would be generic, not the former name brands.
Bezos and Galli had nothing but nice things to say after the divorce. Bezos also said he wouldn't replace Galli, which says something by itself. Although Galli's first-year salary was a paltry $102,266, this leader, who first told Pepsi he'd run Frito-Lay, then snubbed his nose at the company to take the Amazon.com job, qualified by staying a year for a $2.9 million bonus.
Amortizing that bonus down the road at the annual salary rate of $102,266, Bezos will have to wait about 28 years to replace Galli. Could it be too soon?
Speaking of money...
And speaking of Amazon.com, the company's financial results emerged the day after Galli exited. The bottom-line loss was narrower than Wall Street expected, but Amazon.com stock was blistered by the results, striking a 20-month low. Not because Amazon.com missed the critical bottom-line number, but because the rate of sales growth of its core businesses - books, music and videos - appeared to slow.
(A commentator said the other day that 20 years ago, you couldn't even find an earnings estimate. Today, not only is the estimate available, but so are sales estimates and breakdowns of sales estimates and whisper numbers and brothers-in-law with hot tips.)
Investors want more than they've ever wanted before. A disappointment in sales numbers quickly translates into billions of lost stock value that even Galli's Amazon.com pay package couldn't make up.
Speaking of money...
Tim Bueneman at Pacific Crest Securities was all over last week's InfoSpace-Go2Net blockbuster deal. The day before it was announced, when Go2Net stock was hopping more than $7 higher, Bueneman searched under every rock to try to find out what was up. He was nearly certain an acquisition loomed, but couldn't name the suspect. Some thought he was nuts, because Go2Net is effectively controlled by Paul Allen, and why would the Microsoft co-founder yield the reins to this important piece in his wired-world puzzle?
Twenty-four hours later, Wednesday afternoon, Bueneman's suspicions were confirmed. Two Seattle-area Internet-related companies who have had the nerve to report profits along the way would become one.
The initial market reaction was to douse InfoSpace stock and push Go2Net only slightly higher. Part of that is because it is an all-stock deal. From now on, Go2Net stock will be locked to the movement of InfoSpace's shares. The market also declined to give the deal a premium because it does not know Go2Net, a premier provider of Web sites, and hasn't been able to embrace the synergies that these two key Net companies may be able to achieve.
So, assume for the moment that the deal's initial value is restored, that Go2Net shareholders would get InfoSpace stock worth nearly $87 a share. How would Go2Net's principal shareholders benefit?
Co-founders Russell Horowitz and John Keister (not the TV guy) both have miles to go before reaching the age of 40. But they have the wherewithal to celebrate that birthday immensely.
Horowitz's holding, boosted by the fullest impact of the deal, would inflate by $97 million to $319 million. Keister's nest egg would grow $24 million to $79.5 million.
And Paul Allen?
Shucks, the multibillionaire's stash would mushroom $314 million to $1 billion on the nose.
Is that the same billion Galli left on the Amazon.com table?
Rate Microsoft?
After last week's Microsoft missive about the quality of the company's profit, readers asked how Wall Street Recap would rate the stock.
As all the literate and much of the illiterate universe know, Wall Street Recap has no pedigree in stock-picking. No credentials whatsoever.
This can be said: Cheaper stocks are better than expensive stocks, and companies that lead their industries are better than companies that don't, and it's always darkest before the dawn, unless it gets darker.
Stocks and bonds
The Dow Jones industrial average last week declined 222.39 points to 10,511.17.
The Nasdaq composite index gave back 430.99 points, second-worst ever, to 3,663.00.
The Seattle Times Northwest index of more than 200 stocks fell 100.44 points to 1,100.76.
The WM Group Northwest 50, 50 stocks weighted by their regional economic impact, fell 558.44 points to 7,759.86.
The 10-year U.S. Treasury note closed at $1,032.50 per $1,000 of face value, a drop of about $3. The yield was 6.04 percent. Fears about higher interest rates and the pace of the economy were offset by investors switching from stocks to bonds. Eyes are on Friday's employment report to try to get a better fix on whether regulators will bump rates again when they meet Aug. 22.
"The market seems on cruise control," said Judith Cochrane, Banc of America Securities senior municipal-bond trader. Individuals appear eager to buy muni bonds, Cochrane said, but a dearth of supply persists.
The Bank of America Northwest Muni Bond index remained unchanged at 5.77 percent.
Greg Heberlein's phone message number is 206-464-2267. His e-mail address is heberlein@seatimes.com.
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