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To: Glenn D. Rudolph who wrote (121243)	3/22/2001 9:27:53 AM
From: H James Morris	Read Replies (3) \| Respond to of 164684

From RedHerring.com: redherring.com. Get your Internet infrastructure cheap By Eric Moskowitz Red Herring March 21 This article is from the March 20, 2001, issue of Red Herring magazine. Is it just an exercise in the power of positive thinking, or are merger and acquisition specialists correct that a wave of Internet deals is about to begin? Outfits like Akamai Technologies (Nasdaq: AKAM) and Barnesandnoble.com (Nasdaq: BNBN) offer tangible assets at reasonable prices now that their stock prices have sunk by 90 percent, and that could tempt buyers to come a-courtin'. By no means is everyone ready to step out on the dance floor. Potential acquirers like General Electric's (NYSE: GE) NBC are still smarting from the first round of Internet-related deals. But what will inevitably lure potential acquirers in for a closer look, M&A insiders argue, is that some of these Internet companies, besides trading well off their highs, have assets (triple-digit revenue, double-digit growth, and extensive infrastructure) that are simply too compelling to ignore. Alberto Torres, a principal in McKinsey & Company's West Coast corporate finance and strategy practice, insists that 'M&A will likely accelerate over the next few months, particularly if the market settles around the current valuation levels and capital remains scarce.' More specifically, Mr. Torres expects to see what he calls roll-up plays -- when leading vertical players buy second- or third-tier outfits to further distance themselves from everyone else. Based on this reasoning, it's likely that backbone operators like Akamai Technologies and e-commerce retailers like Barnesandnoble.com will be in play. Akamai is attractive as a roll-up because it's a fast-growing Internet infrastructure play with concrete value. The company provides Internet content delivery systems for Web sites through its network of servers and software, and it produces quantifiable savings for customers -- a service that will be even more valuable as corporations tighten their IT belts. In its last quarter, for example, the Cambridge, Massachusetts, firm said it saved Tower Records more than $2 million and Victoria's Secret $1 million in Web infrastructure costs. Akamai's stock price had tumbled from $305 to $9.47 as of March 19, but 'it's still generating a lot of traction among Web sites and building a real business,' says Ray DeVoe, a technology strategist at the financial services company Legg Mason Wood Walker. BULKING UP Akamai has told the Street to expect $240 million in sales in 2001, compared to $90 million last year. The company is still in the red, but analysts say much of its infrastructure build-out is over. That should be attractive to suitors -- plus the fact that the company has $310 million in cash and cash equivalents and sports a market capitalization of $895.2 million, down from a high of $35 billion. Mr. DeVoe sees Akamai as acquisition bait for Global Crossing (Nasdaq: GX), a major player in the Web hosting/infrastructure business. It has grown rapidly through acquisitions. Another possibility is Cisco Systems (Nasdaq: CSCO), which is always looking to expand into new areas and already has a strategic alliance with Akamai to develop new caching technologies. It would be an understatement to say that Barnesandnoble.com, the company that was going to do battle with Amazon.com (Nasdaq: AMZN), has underwhelmed. (Its stock price was down to $1.31 on March 19 from a high of $13.) But despite the disappointment, it still has valuable assets, including hundreds of millions of dollars in infrastructure. At the end of 2000, according to its latest quarterly filing, Barnesandnoble.com had no debt; $150.5 million in net fixed assets, which included property and equipment; and $212 million in cash and marketable securities. Its market capitalization, meanwhile, is just $213 million. 'Amazon is now ten times [Barnesandnoble.com's] size,' Mr. DeVoe says. 'Barnesandnoble.com may just decide to give up the fight and sell its assets.' Although at first blush Amazon.com would seem the most likely candidate to buy Barnesandnoble.com, Amazon.com CEO Jeff Bezos is so desperate to show a profit by year's end that the company is unlikely to take on any significant acquisitions this year. That might clear the way for German media company Bertelsmann to swoop in. It already owns 40 percent of Barnesandnoble.com and is on an acquisition spree, having bought both CDnow and Random House last fall. Let the bargain hunting begin.