Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Broadcast.com (Acquired by Yahoo) -- Ignore unavailable to you. Want to Upgrade?

To: George Martin who wrote (1142)	4/2/1999 11:21:00 PM
From: Carl R.	Respond to of 1260

Yes. Check out this graph on internet and internet video companies. Note the differences in Price/sales ratios. AXC is a bit lower than the other companies even after its big run up. techstocks.com Carl

To: George Martin who wrote (1142)	4/2/1999 11:58:00 PM
From: B. A. Marlow	Read Replies (1) \| Respond to of 1260

Thanks for the follow-up, George. On BCST/YHOO conversion: Hadn't had a chance to look at it in these terms, and you're right. Works out to within pennies of Harmon's number. Of course, it doesn't really, except by coincidence, and that brings us to a useful discussion point. In valuing hypergrowth firms, one thing that's hard to do is account for the issuance of new shares and options in between reporting periods. The inability to assess the dilutive effect of such changes can have a material impact on calculations. Reviewing my own pre-takeout analysis, as well as Harmon's, is instructive. For my calculations, I had used the reported share base of 34.186mm and come up with a takeover value of about $5.1279B, or about $150.00 per share. I figured the deal would go down at a somewhat higher total value--sufficient to offset options dilution. Using Harmon's analysis, the 34mm number produced a takeover value of $138.44. Given the deal's announced value and the original share base, it would have worked out to $166.76 per share the way I'd figured it. But on March 31, BCST reported a higher end-of-quarter outstanding share base of 36.782mm. Applying this number of shares to my calculations would have derived a per share value of $154.97; using Harmon's approach, also a lower number than I'd imputed to his formula. The real kicker was the quarter's increase in the number of BCST options issued, to over 7mm. When these are factored in as share equivalents, the share count jumps to about 44.2mm, and the per share deal value drops to the reported figure of $130. (Had YHOO not appreciated Thursday, BCST would have closed at a share price of about $122 to reflect a time value discount between announcement and expected closing in the third quarter.) So the lesson to learn is to know that options issuance can rise dramatically between reporting periods; this data's not easily derived from common sources. A call to a firm's office of shareholder relations is probably essential, and the information may not be available there, either. Precision in this math shouldn't matter at all for buy-and-hold investors, but it can be critical for short-term traders and arbs. We want to be on the record with this point. In any case, we're looking for an additional $20 to offset the options dilution. As you say (and thanks to YHOO's gain on Thursday), we can account for $8.80 locked up in the discount spread and thus, need $13.20 from further YHOO appreciation. So, we'll ask that YHOO "levitate" by ($13.20/0.7722) about $17.125 to get us there. Pretty small request, huh? From that point on (say, YHOO at $196.875), we have our $150 and the upside's all YHOO's. Since YHOO analysts' estimates now point to a price target of $250-300, we're in great shape! Yes, YHOO accomplished a handsomely "accretive" acquisition on a per user basis. When you consider that BCST actually had over 1mm unique daily visitors (vs. the nominal 850k Harmon worked with), the math probably shows a per user acquisition cost well below 50 cents on the dollar. Looks like everybody wins. Want to close with a final observation. Look at the difference between the way this merger announcement was handled in comparison to USAI/TMCS/LCOS. YHOO and BCST did everything right. They managed expectations through press leaks, set up investors and the media with progress reports, hosted conference calls, made themselves available to the press and answered every question with dignity and clarity. Even after the Monday following the "BusinessWeek" article that broke the story, an investor could have bought BCST for as much as a $20 gain and with little downside risk. That's the way it's supposed to be. To those who didn't get in, a final word. If you like what YHOO and BCST are doing, you can still get into BCST. Currently, you'll end up with a discount on YHOO of $8.80 (about 5 percent) and participate in all of the upside. As a practical matter, the downside risk is merely the volatility of YHOO itself. Your mileage may vary, but if you'd gotten into NSCP after the AOL deal was announced last November, you'd have been sitting on a gain of well over 100 percent as of the closing in March. You'll work hard for better ideas. BAM