February 1999

Contents

Internet Service Providers Await IPO Craze

Internet IPOs have been the overwhelming trend in the market in 1998 with 1999 continuing the same endless path. From theglobe.com to TicketmasterOnline, online companies are taking the world and the stock market by storm. However, the ISP (Internet Service Provider) business seems ready to jump back in the IPO whirlpool as several companies hold the aspirations of going public in the coming month. These companies include Prodigy Communications, FlashNet Communications, OneMain.com and Pacific Internet. With such ISPs as Mindspring and EarthLink Network, Inc. maintaining quite well after their public offerings.

Prodigy is the largest in the ISP registration and is the only of the ISPs with national-brand recognition. It can be remembered from years back as an online pioneer, but suffered a devastating loss as AOL took center stage. Although underwriters Bear, Stearns & Co., BancBoston Robertson Stephens and Furman Selz LLC look optimistically toward Prodigyís second coming, the company possesses several complicated features as a superfluous number of shares currently outstanding will most likely prevent the stock from being priced fairly.

Another ISP, FlashNet Communications will venture into the IPO arena quite soon, backed by underwriters BancBoston Robertson Stephens and Everen Securities. The companyís uniqueness is demonstrated by its use of networking marketing scheme to recruit new users. In other words, certain subscribers are hired as independent contractors and then receive commissions for signing up new users. Currently, FlashNet supports Internet access for 170,000 customers.

OneMain.com, once its public offering is complete, will acquire 17 ISPs, with most of the customers located in the secondary or rural markets. OneMain labels itself as the ISP for small town USA and targets customers who live in areas where they are required to call a long-distance number to connect to the Internet, thus making access prohibitively expensive. The ISPs that will be acquired illustrate solid growth from 17-20% and serve about 273,000 users. Finally, Singapore-based Pacific Internet is focused on providing Internet access throughout the Asia-Pacific region. Although many people in this area do not even own a phone let alone a computer, underwriters Lehman Brothers, Bear, Stearns Inc. and SC Gowen see true potential in this aggressive ISP.

Yahoo!, @Home, Lucent Engage in Strategic Purchases

The consolidation trend of 1998 has already spilled over into early 1999. Not even a full month into the new year, significant mergers have occurred, particularly in the Internet sector. With the Internet plowing through mainstream America at full speed, online businesses are feeling the pressure to consolidate. Of the two biggest Internet mergers has been Yahoo!ís purchase of GeoCities and @Homeís acquisition of Excite.

In the final week of January 1999, Yahoo! announced its purchase of GeoCities for $3.6 billion, which will further solidify Yahoo!ís popularity in a competition to dominate the World Wide Web. Yahoo! placed an offer GeoCities could not refuse since GeoCitiesí market capitalization resides at only $2.3 billion: the company received quite a premium for the buyout. GeoCities, the third most visited site on the Web behind AOL and Yahoo!, posted a loss for $8.4 million, or 27 cents a share for the fourth quarter ended, while revenue for the three month period rose 341 percent to $7.5 million. The deal would propel Yahoo! to the top rated site in terms of traffic.

Another Internet merger was seen @Homeís purchase of Excite, the second-largest search engine. Valued at $6.7 billion, @Home, a high-speed Internet service aimed at cable television subscribers, sought out Excite in order to boost its visibility and market share in the ever so competitive online business. A significant result of this marriage will be an online service that provides customized Internet content at different access speeds to a variety of devices including phones, pagers, and televisions. @Home may push itself further with a possible acquisition of AT&Tís Internet service.

Finally, the telecom technology sector witnessed one of the largest technology mergers ever as Lucent announced its acquisition of Ascend Communications for approximately $20 billion. With the Internet bearing down on the traditional telecommunications routing and switching equipment market, Lucent saw this opportunity as a much needed one in order to maintain its competitiveness. Ascend, the second-largest independent Internet supplier, will enable Lucent to challenge many of the regional Bell companies that are rapidly expanding their wireless and data services.

WorldCom Completes Acquisition of MCI

Receiving a note of confirmation from the U.S. Federal Communications Commission, WorldCom completed its takeover of MCI Telecommunications Corporation, creating a telecommunication giant that would provide customers with a wide variety of services ranging from Internet access to long-distance and local telephone services.

Called MCI WorldCom, the new company is considered the second largest long-distance service provider in the U.S. Offering services to almost 22 million customers around the world, the new company is expected to become a future competitor to the Baby Bells, AT&T and other local and international telecommunications carriers.

At the initial stages of negotiations, analysts were concerned that the FCC would not give such a merger a green light amid concerns of stifled competition in the residential phone market. To prove that the competition would not be threatened, MCI agreed to sell its Internet assets to Cable & Wireless PLC earlier this year for $1.75 billion. The moved was made as the FCC, the Department of Justice and a number of European regulators required the sale as a condition to the merger. Both companiesí officials were trying to make it clear that the new company would increase competition, rather than putting it under pressure.

Wall Street analysts have expressed high expectations for the merger. In particular, many analysts predict that the new companyís annual revenues will increase as much as 20% next year.

It is expected that Bernard J. Ebbers, WorldComís CEO would become president of the new telecom giant, while MCIís chairman Bert Robert would become chairman of.

The new company with revenues of around $30 billion now employs more than 75,000 employees in 65 countries. The companyís stock is traded on NASDAQ under the symbol WCOM.

StarMedia vs. AOL in Latin America, DoubleClick & Altavista Sign Agreement

StarMedia has proved to be a Silicon Alley prodigy as it attempts to dominate the Latin American Internet market. With over 75 million pageviews a month and $80 million in the bank, the company looks to be unstoppable, but there is indeed a shark in the tankÖAmerica Online.

Just last month AOL announced a joint venture that will bring the North American powerhouse to Latin America in the next year and now becoming an archrival for StarMedia, which does not possess the size and strength of that of AOL. However, AOLís partner in the venture, the Cisneros Group Venezuela may jump into the Internet business since it already owns more than a dozen media properties in Latin America, including broadcast TV networks in Chile, Colombia, and Venezuela. A recent study has predicted that 34 million Latin Americans will have Web access by the year 2000, up from 4.5 million than are considered to be online today. Furthermore, a survey of Latin American ISPs conducted by Mexican telco Avantel states that the number of Internet users across the region is increasing by almost 20% per month. StarMedia attempts to attract these people by creating a community with wide variety of components typical of a major portal site - news, sports, travel, chat, free e-mail and homepage building.

On a different note, DoubleClick has signed a new agreement with Compaq that will keep DoubleClickís crucial client - AltaVista - in the DoubleClick ad network for three years. With revenue up 40% to $29 million for the third quarter of 1998 and the fourth quarter showing a 167% increase, DoubleClick is performing well in the Internet market. Preserving the AltaVista relationship was crucial because the ads served on AltaVista accounted for 44% of total revenues of DoubleClickís various ad networks in 1998.

Under the new deal, DoubleClick will be the exclusive seller of pageview, direct marketing, and keyword-based advertising on AltaVista in the U.S. and overseas. DoubleClick will account for the ads sold, by splitting it 70% AltaVista and 30% DoubleClick.

IPO.com: Internet Gold Mines Continue in 1999

The phenomenal success of the recent Internet IPO ventures has paved the way for a new influx of online businesses that feel the urge to enter the Web-hungry market. The most recent of these ventures is MarketWatch.com, Inc. The company features a plethora of business information ranging from stock quotes to annual reports. MarketWatch.com may push its products, which are two different subscription packages, but over two-thirds of its revenue derives from advertising revenue. TV network CBS and Data Broadcasting Co. each own 38% of the company. Underwritten by BT Alex Brown, Salomon Smith Barney and DLJ, its stock price escalated to $97 from an offering price of $17 in its first day on the market.

With outrageous news like this, just about any Internet company will jump on the bandwagon, and indeed many have. MiningCo.com, a Web directory with 600 GuideSites, each dedicated to a single topic and managed by an expert human guide, is one of these Internet companies. MiningCo.ís Guidesites are broken down into 13 channels covering topics from art to business. Underwriter Bear, Stearns & Co. plans to hit center stage some time in February. Silicon Alley superstar, iVillage, is looking to follow the public offer trend. iVillage promotes itself as a leading provider of interactive programming for women providing advice on careers, health and so forth. With such investors as America Online, which owns a 14% stake, and TV network NBC, the company may leave quite an impression on the market when it debuts.

Yet another ì.comî has decided to test the IPO waters as AutoWeb.com, Inc. has filed for public offering at the end January. The companyís Web site allows prospective new or used car buyers outline the details of their desired cars; while nearby car dealers who have registered with the AutoWeb.com service then have 24 hours to respond with their best offers. AutoWeb.com, which just recently filed for an IPO, is backed by underwriters Credit Suisse FirstBoston and BancBoston Robertson Stephens. Simply put: nearly any company with a ì.comî has seen a ì$$$î once it has entered the IPO marketÖregardless of the companyís financial stability or history.

Japanese Business in the United States

  • The in vitro diagnostic oncology business of Pennsylvania based Centacor Inc. has been acquired by Fujirebio Inc., Japanís top maker of diagnostic drugs.
  • Kirin Brewery Co., Ltd. has entered into a two-year collaboration with Hyseq, Inc. of Sunnyvale, California to target novel genes involved in cell growth regulation from specific cell lines.
  • Japanís largest distributor of software, Softbank Corp., has entered into a strategic alliance with Ingram Micro Inc., a leader in wholesale distribution of technology products and services.
  • Hitachi PC Corp. recently introduced an eight-way Pentium II Xeon-based model in its VisionBase line of enterprise servers. The California based company has already began shipping the VisionBase 8880.
  • Canon Inc. is expanding its original equipment manufacturer arrangement with Hewlett-Packard Co. covering engines for monochrome printers to color laser printers.
  • Matsushita Electric Industrial Co., Ltd., via its Princeton, New Jersey-based Panasonic Technologies, Inc. subsidiary, has opened the Panasonic Digital Concepts Center.
  • By the end of March 1999, Mitsui Trust & Banking Co., Ltd. will surrender its banking license and become an investment advisory firm in New York.
  • Soy sauce manufacturer Kikkoman Corp., has started shipments from its second American manufacturing facility.
  • Cleveland-headquartered Euclid-Hitachi Heavy Equipment, Inc., will be a wholly owned Hitachi Construction Machinery Co., Ltd. company by the year 2001.
  • Fuji Photo Film Co., Ltd. is building a research and development facility at its Greenwood, South Carolina manufacturing complex to quickly respond to changes in the American marketplace.
  • NEC Corp. named Centillium Technology Corp. its DSL chipset supplier.
  • Toshiba Corp. plans to reinforce its ASIC business in the U.S. It will boost its lineup of the custom-made devices, which are finding more applications in communications equipment.
  • Verio Inc., involved in a partnership with Nippon Telegraph and Telephone Corp., has launched Internet access services for corporate customers, mainly Japanese multinationals operating in the U.S.
  • Wytec, Inc., a developer of standards-based cellular communications products, has gained a key partner, Marubeni Corp. to sell broadband wireless systems.
  • Kayaba Industries Co., Ltd. and Arvin Industries, Inc. have worked out a production-sharing deal on suspension systems.
  • Toyota Motor Corp. and Exxon Corp. have entered into a long-term relationship to ìaccelerate the pace of developmentî of advanced internal combustion engines and hybrids.
    • Contact Information: Morgen, Evan & Company, Inc. Copyright 1999