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Technology Stocks : Ampex Corporation (AEXCA) -- Ignore unavailable to you. Want to Upgrade?

To: Michael Olds who wrote (7523)	4/18/1999 5:56:00 PM
From: Carl R.	Read Replies (2) \| Respond to of 17679

You raise some good points, Michael. You didn't mention the easiest way for AXC to raise some money to finance the additional projects, and that is for AXC to part with some of their shares in TVoW in the IPO. You are correct of course that the "flip artists", and high rollers who get first crack at the IPO make a great deal of money off of the IPO, which is why both AXC and Gardy will want to hold back a substantial interest in new company. The fact that the "flip artists" make such a chunk of change off the IPO is one argument to sell the whole thing to AOL or CMGI without ever doing an IPO, by the way. That way AXC and Gardy realize the full market value of TVoW, whatever that is. If I were Bramson, the big thing that would be entering my mind is what my company will be worth a year or five years from now if I hold the pieces together, versus what it would bring today. In other words in looking at TVoW I would compare the value of the future revenue stream if I run it, the value I receive in an IPO, and the value I would get by selling it outright. Personally I suspect TVoW is worth more to AOL than to AXC, and if they offer say $3 Billion Bramson would be a fool not to take it. You can probably do this better than I can, but lets try to create what an IPO might look like. To make the numbers round, assume that AXC and Gardy each hold 50%. Let's say that in the IPO each sell 10% of the company, and the company increases the outstanding stock by 20%. Then after the IPO AXC, Gardy, and the public will each own 33%. Assume further that the underwriter wants to price the issue to assure that their best clients (i.e. "flip artists") receive 2/3 of the proceeds of the IPO, as is usual and customary, and the company receives 1/3. Then assume that the ultimate market cap of the new company is $3 billion. The $3 billion would be $1 billion in stock each for Gardy and AXC, $667 million in proceeds to the "flip artists", $82 million in cash to AXC, $82 million to Gardy, and $160 million to TVoW. The pool of $333 million to AXC, Gardy, and TVoW can be split in other ways, depending on who sells stock, obviously. Also, I should point out that I neglected the underwriter's cut, which would also be substantial. In the above case, AXC receives value of $1.1 billion for the company. If they sell it outright to AOL or CMGI for $3 billion they receive $1.5 billion for it. Therefore a direct sale of the company nets more than doing the IPO first. And doing the IPO yields only a limited amount of cash for AXC. In actuality the initial market cap of TVoW would probably be much less than the $3 billion in the example above, probably no more than $1 billion, though it would hopefully rise in time to the $3 billion level. Therefore the cash receipts may well be much less, probably 1/3 of the amounts listed above. Thus post-IPO I would guess that AXC will hold about $333mm of TVoW stock and maybe $20mm in cash. Does this sound reasonable? As I work through the numbers, an outright sale to a big portal looks increasingly attractive. Carl