Here is an article on BNYN from street.com Today...
Herb on TheStreet: Is InfoSpace Really Worth That Much More Than
Switchboard?
By Herb Greenberg
Senior Columnist
*From the "either one's too cheap, or the other's too expensive"
department: This week, perhaps as soon as tomorrow, InfoSpace.com is
expected to go public. The "cornerstone" of its business, according to its
prospectus, is a nationwide yellow-and-white pages telephone directory. For
the first nine months of the year, InfoSpace had sales of $5.3 million and,
like most Internet companies, a big loss ($3.5 million).
Compare that with Banyan Systems (BNYN:Nasdaq), which for the first nine
months of this year earned $285,000 on sales of $54.7 million, mostly from
its networking and message software biz.
What does Banyan have to do with InfoSpace?
Nothing, except Banyan also owns a tiny company called Switchboard, which
according to Media Metrix operates the country's leading online telephone
number directory.
Which brings us to the reason for today's column: Banyan's market cap,
based on Friday's close, was $166 million. InfoSpace, meanwhile, is
expected to have a market value of at least $190 million, if the stock
prices in the middle of its expected range. (Much higher if the stock, as
expected, closes substantially above its $9 to $11 range.)
So, here's Banyan, which is earning money and owns a business very similar
in size to InfoSpace -- a biz Banyan expects to spin off next year --
trading at what may very well be a discount to InfoSpace.
Why the discrepancy? A big reason has to do with Switchboard's decision not
to renew an agreement it had to provide yellow-and-white-pages directory
service to America Online (AOL:NYSE) -- which (irony of ironies) happens to
own 10% of Switchboard. The AOL biz, which represented half of
Switchboard's traffic, instead is going to (guess who?) InfoSpace (white
pages) and GTE (GTE:NYSE) (yellow pages).
Not a pretty sight -- at least not until you hear Switchboard Prez Dean
Polnerow's side of the story. He says Switchboard decided against bidding
for the AOL biz because it was simply too expensive. He says InfoSpace and
GTE paid AOL a total of $14 million for the deal. "We weren't paying them
anywhere near that kind of money, and we're still not financially positive
from the deal we had," he says. "Couple with that you see what you can do
with that money and there are some real interesting possibilities."
As the directory provider to AOL, Polnerow says Switchboard's brand was
transparent; he says Switchboard is betting there's a market for its brand.
As for the lost AOL traffic -- and the decline in ad revs that started last
quarter when it became known the AOL deal was being put out to bids --
Polnerow says Switchboard believes it can build it back in "a healthier
way." (Along those lines, it just struck a deal to provide branded
directory service to GeoCities (GCTY:Nasdaq).)
He adds: "Our perspective is that carriage fees through these portals are
driven through the roof through an auction process, where all these players
do a few bids to see who can pay the highest price. Restrictions in these
deals are heavy-handed regarding such things as what the interface looks
like and the level of branding you get, which is nonexistent."
Sounds logical, but logic isn't what this market is all about. Especially
when it comes to the Internet.
*The 800-pound gorilla syndrome: Visual Networks (VNWK:Nasdaq) has built a
fine business, good enough for its stock to be nearly triple its $12.50 IPO
price of earlier this year. Most of its biz involves a "frame relay"
networking product, used mostly by the big telecom companies, that kicks in
if a line goes down or a big user creates a situation where the network
must reroute traffic. It has been a good business, so good in fact that it
has attracted the attention of Cisco (CSCO:Nasdaq).
Analyst/broker Noel Bustamante, of First Financial Investment Securities in
Austin, Texas, has been telling his clients that his sources believe Cisco
intends to bundle 80% of the same functions provided by Visual's principal
product into its own frame relay product. "The talk coming from the
installed base is that customers are reacting favorably to Cisco's
inclusion, which saves them per installation," he says.
Cisco officials didn't confirm the information. Visual Networks CFO Peter
Minihane says he doesn't know of any product that Cisco has announced or is
going to announce that would compete head-on with Visual. He adds that in
the network biz "you always hear something" about potential competition.
"But again, we'll continue to keep our ears open and if we hear that they
announce a product, we'll get it analyzed and come with a response if it's
a competitive product."
*So last week, in the midst of commenting about CEOs who manage their
stocks, Cramer writes: "This stuff drives guys like Herb Greenberg crazy.
They think stock management is a dirty business. To me, it has become THE
business, and the guys who don't play it, the Newells of the world, get
dumped, and the guys that do, get bought."
Lemme just say this from the asylum in which I am now residing: If I were a
trader like JJC, I'd love someone to manage the stock. But stock managers
sometimes screw small investors who get caught holding the bag. You can
only manage a stock so far. As Jeff Matthews of RamPartners, a former
Newell (NWL:NYSE) investor (and regular contact of this column), points
out, Newell was the king of managing its stock through acquisitions until
it found Rubbermaid (RBD:NYSE), which may have been one deal too many.
"Newell's stock management rope ran out," he says. "Amazon's (AMZN:Nasdaq)
will run out the same way."
******
Herb Greenberg writes daily for TheStreet.com. In keeping with the
editorial policy of TSC, he does not own or short individual stocks. He
also does not invest in hedge funds or any other private investment
partnerships. He welcomes your feedback at herb@thestreet.com. Greenberg
writes a monthly column for Fortune and provides daily commentary for CNBC
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