July 2000 Contents
The IPO party on Wall Street got put on hiatus this spring, as brutal volatility among Net and tech stocks dealt a sobering blow to investors' carefree state of mind. But even while the festivities were on hold, the backlog of companies waiting for their chance at a good time has stayed fairly constant. At last count, more than 200 companies had initial offerings pending this year on Nasdaq. Many of them had hoped to hit the market in April or May, but a skittish stock market held them back. That slowdown is likely to reverse course, however, if the strong performance of the tech sector in recent days keeps chugging along. If the market stays strong in June, there will be a lot of deals toward the end of the month. In the immediate future, the calendar is still rather sparse, with only about a half-dozen deals planned for next week. As for the next few weeks, analysts are loath to forecast a return to the glory days of February and early March, when the Net or tech IPOs more than doubled in its first day of trading. Lately, an average increase is more around 40 percent. In addition, poor aftermarket performance among dot-com issues has put a damper on offerings in that sector. The strong showing this week from fiber optic firm ONI Systems, which more than doubled its first day out, is an indication that investors are still willing to pay plenty for deals they like. The problem, is there are still plenty of deals in the pipeline that investors probably won't like. And until those get weeded out, demand for IPOs won't really hit its stride. The backlog of companies in the IPO pipeline is high by historical standards. So far this year, only a fraction of the hundreds of companies that filed to go public have actually started trading. In fact, if the market doesn't tank again, 2000 should be one of the active years ever for companies filing to go public. There are still far too many deals out there that need to disappear. If the weaker companies drop out, the stronger deals will have a better chance to flourish. Webvan Sets Deal to Buy HomeGrocer Webvan Group Inc. agreed to acquire rival HomeGrocer.com Inc. for $1.09 billion in stock, showing just how far the consolidation among Web companies has spread as capital gets harder to find. The deal represents one of the highest-profile mergers to date among e-commerce companies, and it could portend a wave of deals as companies race to become profitable before they run out of money. Just months ago, many online retailers were more concerned about building brands than they were about profits, and investors didn’t seem to mind. Officials of Webvan and HomeGrocer said that a major catalyst for their merger was a belief that capital markets have dried up too much for them to continue alone. By joining forces, their combined cash trove will be between $600 million and $700 million, analysts estimated, with about $400 million from Webvan and between $200 million $300 million from HomeGrocer. At the rate both companies were spending cash, analysts said they each would have been forced to seek new financing by year end, a difficult proposition considering the current bear market for many Internet stocks. By combining funds, and sparing the toll of competing with each other, Webvan may not need a major capital infusion through all of next year. Although most analysts hailed the merger as strategically sound, shares of the companies remained depressed amid a generally down day for e-commerce stocks. HomeGrocer shareholders would receive 1.07605 shares of Webvan common stock for every HomeGrocer share. The total of 138 million Webvan shares being exchanged would give HomeGrocer shareholders a 28.3% stake in Webvan. The companies said they expect the transaction to close late in the third quarter or early in the fourth, pending regulatory and shareholder approvals. Two Players in Digital Rights on Demand Two Alley-based companies are building businesses by responding to the challenge of protecting copyright material in the digital age. RightsWorld.com is one. The online auction site helps sell subsidiary rights that go with the publication of a book, and charges $19.95 to list on its site as many subsidiary rights for sale under one title. The company's clients, who include Columbia University Press and Random House, can sell the rights to have a book translated into French, made into a film and/or imprinted on T-shirts, for example. The start-up launched in April and currently has eight employees. Company president Nick Bogarty calls the RightsWorld venture an eBay-like marketplace for publishers who sell subsidiary rights to buyers, usually in a deal range of $20,000 or below. Although Bogarty also works on film deals with higher price tags, his market is primarily in the smaller deals. For instance, the company posted a $500 bid to translate a novel into French, and posted a one-year, $20,000 deal option for film rights. To date, RightsWorld.com has 100 buyers and sellers signed to its service. It takes a five- percent cut of each sale. Of course, trust is the currency for RightsWorld and others like it, such as the other Alley company playing in the space: Reciprical, which bills itself as a digital rights protector. The four-year-old Reciprical makes its money through encryption services that safeguard the sale and distribution channels of music and other forms of content on Web sites such as RightsWorld.com, or any site that sells content. Howard Singer, Reciprical's senior vice president of business development, concedes that it is impossible to safeguard copyrighted material even from the least-ingenious teen whose mission is to cop material for free. But Reciprical is working on ways to find a business that offers a solution to widespread file sharing, he said. For instance, every time a user buys a Sony song and sends a file to someone else, Reciprical's technology makes it impossible to access the song without paying for it first. Microsoft partners on interactive TV project
Microsoft, Thomson and DirecTV today announced they are teaming to launch an all-in-one interactive TV set-top box and service. The three companies, which had separate, pre-existing relationships among themselves, will launch a new set-top box from Thomson's RCA featuring DirecTV satellite service and a new version of WebTV from Microsoft, Ultimate TV. The new product reflects the growing interest in interactive television as a marketing and e-commerce profit center, as the Internet moves off PCs and onto nontraditional information appliances like Web pads, wireless handheld computers, cell phones and TV set-top boxes. The device will include a hard drive capable of recording up to 30 hours of video, as well as two satellite TV decoders, which will enable picture-in-picture viewing and the ability to tape one show while watching another. Outfitted with a dial-up 56-kbps modem, the RCA box will compete with digital video recorders from TiVo and Replay Networks and satellite provider Echostar. It allows the consumer to watch what they want when they want to watch it. Microsoft is clearly responding to growing competitive pressure. The market is growing increasingly crowded with entries from start-ups like TiVo and Replay, which pioneered the digital video recording market, as well as with the upcoming launch of AOL TV. The Ultimate TV service is being positioned as more integrated with traditional PC Internet access, unlike WebTV, which is offered as a PC replacement. The three companies have visions of extending the Ultimate TV service on the RCA DirecTV box as technology improves. The box is fitted with USB ports, which will allow it to be upgraded with a DSL modem for high-speed Internet access or other peripherals. Eventually, new digital music and gaming opportunities may be pursued as well. Thomson is developing a product that would use a hard drive to act as both a digital video recorder and digital music jukebox. This is the coming-out party, not the end game. AT&T Corp. has completed its $44 billion acquisition of MediaOne Group Inc., making it the largest U.S. cable television operator with 16 million customers. MediaOne is a crucial part of AT&T's strategy to use cable TV wires to provide television, telephone and Internet services directly to its customers, rather than using the Baby Bells' local telephone lines. The combination of AT&T and MediaOne means that far more American consumers will have a real choice and lower prices in local phone service, faster Internet access and better cable TV. AT&T has invested about $100 billion in cable TV, including last year's acquisition of Tele-Communications Inc. Most of AT&T cable TV networks, which reach nearly 28 million American homes, will be upgraded to handle video, high-speed Internet access, cable telephony and interactive television. MediaOne's services will be renamed under the AT&T brand. Although the MediaOne deal has been completed, AT&T still must meet regulatory conditions placed on the deal that call for the company to shed some of its cable subscribers or investments. The Federal Communications Commission gave AT&T the option of divesting Meiden’s 25.5 percent interest in the Time Warner Entertainment (TWE) partnership with Time Warner Inc., or shedding programming interests, including Liberty Media Group and others. As a third alternative, AT&T could sell interests in other cable systems serving more than 9.7 million subscribers. AT&T has until mid-November to decide how it will comply. AT&T plans to issue 606 million common shares and $23 billion in cash to close the transaction. Following the merger, about 3.7 billion AT&T shares will be outstanding, and the company expects to have about five million shareowners. Japanese Business in the United States u Nissan Motor Co. expects to sell more vehicles in the U.S. market than in Japan for the first time ever in fiscal 2000. Nissan struggling to turn its operations around, aims to take advantage of the booming U.S. economy to bump up sales there. The automaker which will release no new models in the first half of fiscal 2000, projects sales of 772,000 units at home and 780,000 vehicles in the U.S. for the year. The domestic sales target is 40% lower than its fiscal 1999 peak. v u Daiichi Pharmaceutical Co. is stepping up its marketing efforts in the U.S. as part of its drive to boost annual sales there to 54 billion-yen by fiscal 2006 from 8.5 billion-yen in fiscal 1998. The company has expanded its sales force at U.S. subsidiary Daiichi Pharmaceutical Corp. by 60 representatives to 100 when the unit began selling Evoxac, a dry-mouth treatment for Sjogren's syndrome. First-year sales of the product are targeted at 1.0-1.5 billion-yen. In the pipeline are DX8951fm, a cancer treatment scheduled to debut in fiscal 2003, and DU-6859a, an antibiotic to be unveiled the following year. v u Honda Motor Co. has received an order from the New York State Department of Transportation for 60 Civics powered by compressed natural gas (CNG). The Civic GX has been approved in the U.S. as a "super-ultralow-emission" vehicle. The engine reduces carbon-dioxide emissions by about 20% compared with gasoline-powered vehicles. v u Information Services International-Dentsu Ltd., a joint venture between Dentsu Inc., Japan's leading advertising agency, and the General Electric group of the U.S., has begun marketing asset-portfolio management systems in the U.S.v u Komatsu Ltd. will spend about 1 billion-yen to build a construction equipment-training center in the U.S. state of Georgia. Construction will begin in July so that the facility can open in May 2001. The center will feature a showroom and offer skills training. People will also be able to try out different types of machinery to evaluate quality and performance. The training center will be Komatsu’s second after its existing site in Shizuoka Prefecture. The rival Caterpillar Inc. group has a total of three centers in Japan, the U.S. and Europe.v u Stanley Electric Co. plans to start joint production of chip light-emitting diodes (LEDs) for use in cellular phones with a U.S. partner in the Canadian province of Ontario. The major maker of automotive electrical equipment will set up a joint venture with Massachusetts-based SLI Inc. as early as this month and aims to start production early next year of about 10 million diodes per month. Stanley has other production facilities in Japan and Thailand, among others. It hopes the new plant will enable it to cash in on expected growth in demand in North America. It will utilize SLI’s sales channels to boost chip LED sales.v
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