``A BARGAIN.''
BusinessWeek Online
INSIDE WALL STREET ONLINE -- The Reborn J Net May Have a Growth Charm
INSIDE WALL STREET ONLINE
By Gene Marcial in New York
If you haven't entirely burned out on Internet stocks and want to take another fling at the group, you might want to consider Big Board-listed J Net Enterprises (NYSE:J - news), formerly named Jackpot Enterprises. Why? J Net may have just hit the jackpot in its latest deal with cash-strapped InterWorld (NasdaqNM:INTW), a global provider of software solutions for business-to-business (B2B) and business-to-consumer (B2C) e-commerce. George Soros was an early investor in InterWorld which, like many other Internet companies, has flamed out to almost zero.
J Net, currently trading at $6 a share, transformed itself at the end of 1999 from a gaming company to a technology holding company and incubator of Internet companies. After CEO Donald Kornstein left in mid-2000, Jackpot Chairman Alan Tessler took over the helm as CEO and turned Jackpot into a new company. One investment pro who has increased his company's stake in J Net as a result is mutual-fund maven Mario Gabelli. His investment company now owns 13% of J Net, up from 8.5%. Gabelli was originally a stakeholder in Jackpot.
InterWorld was a high-flier during the glory days of Net stocks, soaring up to 85 a share in mid-March, 2000. Then the roof caved in. With a massive correction hitting the dot-coms, the stock had tumbled to 50 by the end of March, and what followed was a scary, speedy downhill ride for InterWorld investors. It dropped by mid-April to 20, and today, it's trading at a mere 68 cents a share.
COMPLEX DEAL. Burdened with losses and mounting debt, InterWorld in January turned to its main financial backer, J Net, which already had acquired some $20 million worth of InterWorld shares, or 20% of the stock, some six months ago.
But InterWorld owed J Net some $30 million. To pay off that liability, InterWorld agreed to sell more shares to J Net, giving J Net up to 56% ownership. That's not all. J Net has the right to purchase additional shares at 65 cents a share. All told, InterWorld would receive $40 million from the complex financing deal. But control of the company moved to J Net. InterWorld's board has elected J Net CEO Tessler as chairman of InterWorld. Previous Chairnman Michael Donahue was named vice-chairman but retained his title of Interworld CEO.
With its huge and increasing stake in Interworld, J Net's holding in that company is already worth $6 a share in J Net stock, thus almost doubling the value of J Net shares. And if InterWorld with its new cash hoard starts to do better, as some big investors predict, the value of J Net's holdings will increase even more. So should J Net's own stock.
``A BARGAIN.'' Ken Pavia, president of Bolero Investments, which had been a stakeholder in Jackpot and now is a 5% holder in J Net, calculates that if the InterWorld's stock were to eventually rise to, say, $3 a share, J Net's interest in InterWorld would be worth 30 a share in J Net stock. ``I believe this could happen because of the brightening prospects of InterWorld under the guidance and leaderhip of J Net and J Net CEO Tessler,'' says Pavia.
At this level, ``shares of J Net are definitely a bargain, considering the prospective value of InterWorld,'' says Leo Rishty, editor of the market newsletter, Unique Situations, in Weston, Fla. Revenues at InterWorld in the past nine months rose to nearly $50 million, vs. $43 million for all of 2000, Rishty says. Joseph Biernat, director of research at Boston securities firm Kimball & Cross, has a 12-month price target of 20 to 22 for J Net's stock.
In its previous life, Jackpot and its stock had their ups and downs. But in the summer of 2000, it flew as high as 21 a share, up from 10. One reason was Players International had offered to buy Jackpot, which was then one of the largest slot-machine operators in Nevada, with some 3,700 machines at 375 locations. But when Players backed out of its commitment, Jackpot's stock collapsed, dropping back down to around 10. Jackpot received a breakup fee of $13.5 million from Players.
Rishty and Pavia now predict that InterWorld will turn profitable sometime next year. If that happens, the big beneficiary, they're sure, will be J Net -- which could own as much as 68% of InterWorld if it were to exercise all of its options to buy shares. |
