INTERESTING STORY, with info about our friends at AXXS (the stock detective)
Zapata Is Only the Latest Firm
To Opt for an Internet Makeover
By LISA BRANSTEN
THE WALL STREET JOURNAL INTERACTIVE EDITION
The intersection of Wall Street and the Internet can be a dangerous place, where the buzz over hot technology collides with eager money and the hunger to make more of it.
As analysts see it, good sense is sometimes the casualty in the collision.
Early Thursday, for example, Zapata, a holding company that makes its money from such things as fish products and sausage casings, stunned analysts and investors with an unsolicited offer to acquire Internet-directory company Excite. Excite compared its market value of more than $1 billion with Zapata's market value of about $250 million and laughed the offer off as a publicity stunt.
But Zapata -- which is renaming itself Zap -- isn't the first company to try to trade its dowdy trappings in on a glitzy Internet wardrobe.
Earlier in the week, in a much less-heralded deal, Paradise Holdings, of Sacramento, Calif., agreed to acquire the Internet publications of Axxess, of Altamonte Springs, Fla., for an undisclosed amount.
At least Paradise knew a thing or two about Java -- even though it was the wrong kind. Until May 12, Paradise was known as a chain of bakery and espresso shops called Java Centrale. The name change came shortly before the Axxess deal and Paradise's announcement that it was getting out of the food gig, selling its money-losing retail operations to AFC Enterprises, the Atlanta parent company of food chains such as Popeye's Chicken & Biscuits and Seattle Coffee.
So why the new direction? Try the magic word "Internet."
"Have you ever looked at the multiples on Internet companies? They're pretty high," said Gary Nelson, chief executive of Paradise, adding that moving into the Internet is the best way to increase shareholder value.
Avram Glazer, Zapata's chief executive, gave essentially the same answer, but cited profit potential rather than just stock price.
So far, however, investors aren't convinced. Shares of Excite got only a minor bump Thursday from the takeover talk, while shares of Zapata slipped 7/8 to 10 1/2. Paradise, meanwhile, slumped all week, closing at 3 1/4 after starting the week at 3 3/4.
But who says Messrs. Nelson and Glazer are crazy? After all, Yahoo! is trading at more than 250 times estimated 1998 earnings, and Internet deals sent shares of oldies-but-goodies record company K-Tel screaming up 525% in a little more than a month.
Add in the fact that C-Phone, a video-conferencing company, ignited a frenzy of on-line discussion and surged 136% after the company said it planned to introduce a new Web-browsing product for TVs.
All of this craziness may well be a sign that the Internet is going to be an important medium, said Bill Burnham, an analyst at DMG Technology Group. But, he added, "it also means that a lot of people are getting way ahead of themselves. It's not going to be that big of a deal."
Internet remakes aren't just a 1998 fad, either.
Zenith Electronics announced Friday that it will seek bankruptcy protection and become a privately-held subsidiary of its majority investor, South Korea's LG Group its majority investor. Its shares closed Thursday at 5/8, before the company was delisted by the New York Stock Exchange.
But two years ago, the company caught another wave of Internet craziness, jumping more than 200% into the low 20s after announcing it had developed an Internet set-top box. And then there's the horror story of Diana, the food-delivery company turned Internet-switch maker turned disaster for investors.
Mindful of such sad stories, Alan Braverman, an analyst at Credit Suisse First Boston, has a warning for investors fascinated by the likes of K-Tel and C-Phone. "It's one thing when somebody says, 'Hey, we're going to [sell something on the Internet]' " he said. "It's a whole other thing to say that you're going to do it and do it well." |
