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To: gpowell who wrote (27675)	4/20/2001 9:14:02 PM
From: gpowell	Respond to of 29970

The Man Behind the Curtain and the New Keiretsu: A Closer Look at the Internet Equity Frenzy by, Barclay T. Leib June, 1999 sandspring.com The Netscape Stumble & Excite Deal One doesn't need a particularly long memory to find a singularly good example of the keiretsu in action. Back in the spring of 1998, Netscape, an original Kleiner Perkins financed browser company, found itself in fierce competition with Microsoft Explorer, Microsoft having itself yet to feel the full force of the government's antitrust efforts. Netscape was looking increasingly like a loser. They were continuously losing market share for their previously popular home page to Microsoft and others. Netscape had previously sold access to Yahoo and Excite search engines on their page for a fee to both companies of some $5 million apiece. But as the popularity of these search-engine companies grew on their own, they actually needed Netscape less and less. The portal offspring were largely biting the hand that originally fed them, complaining that the fees Netscape required were too high and would not be renewed. In a word, Netscape was getting squeezed out on both sides of its business, Microsoft on one side and the search-engine portals on the other, and Netscape itself desperately needed a new strategy. Enter Excite, another member of the Kleiner Perkins keiretsu, to the rescue. Previously one of the loudest complainers about Netscape fees, Excite suddenly turned around and signed a "co-branded services" agreement with Netscape, providing Netscape with Excite technology to re-engineer their home page as a full Internet portal, not just a browser. Better yet, Excite actually agreed to pay Netscape $70 million, plus warrants valued at $16.1 million for Excite stock, as an advance on future advertising revenues that their joint venture would supposedly create. Excite In Turn Leans on Intuit... Now this was a pretty sweet deal for Netscape, and Wall Street cheered the entry of Netscape into the sexy web-portal business. Was it surprising that Excite was to pay 600% more for somewhat better placement on a service that it had previously said was not essential to its business strategy? Maybe Excite had previously just been negotiating. Was it surprising that Excite only had a little more than $25 million in cash the month before it made the deal? Not given the "I will gladly pay you tomorrow for a hamburger today" financing mentality of the 'net. Excite simply turned to another member of the Kleiner Perkins keiretsu, Intuit, for a $50 million bridge loan, with Intuit (albeit a large stockholder in Excite at the time) suddenly deciding to get into the investment banking business. It lent the money to Excite for the Netscape deal even though Excite didn't have a prayer of repaying the money from actual operations. ...Before Excite then Sells More Stock To the Public But then the really fishy stuff began, even within the same month that Excite signed the Netscape deal. Excite suddenly announced that it would write off $56.8 million or about two-thirds of the consideration in the Netscape deal, in effect announcing to the world it had grossly overpaid for its rights. Then in the midst of mania, Excite just sold stock, raising $84 million in a secondary offering. Excite, in its business wisdom, had just turned a dollar into three dimes and some pennies in a little under a month, but investors were still willing to send them more money, obviously not paying close attention to the offering prospectus where these gory details were explained. What these new investors obviously didn't know, or appear to know, was that their new equity cash injection was keeping not just a couple of companies alive, but the ever-increasing stock dreams of the investors who had come before. Mr. Ponzi take note. Then @Home Rescues Excite With a bleeding core business and the prospect of a few more keiretsu-inspired wounds, Excite probably was told by its real investment bankers to start looking for a new donor. Eight months later, the Company signed its premium-priced merger agreement with @Home, another Kleiner Perkins keiretsu member. According to the New York Times, this merger occurred despite the very board of @Home questioning the wisdom and rationale for the merger. But really, was there ever any question? Who wouldn't want a merger that valued the combined entity at nearly $20 billion, and Excite itself at $7 billion, when Excite had an accumulated deficit of some $143 million just two months before. @Home was just the latest recipient of the Excite hot potato, another strategic deal to camouflage the mistakes and excesses of the past, and another way to assuage shareholders and to keep the overall Internet game going. ...