 |
|
|
  | |
. | |
A L S O_ T O D A Y
T A B L E__T A L K What's wrong with cyberspace? Take a moment to vent in the Digital Culture area of Table Talk
Technology news from
R E C E N T L Y The tomorrow tribe Confessions of an online sex columnist The 21st Challenge No. 18 Results The scandal domain name game To catch a thief - - - - - - - - - - BROWSE THE - - - - - - - - - -
|
|
THE WAR FOR WIRED | PAGE 1, 2, 3
Wired's misfortunes seemed to start as soon as it filed its prospectus with the SEC on May 30, 1996. Until then, the company held the vanguard of the digital revolution that it chronicled. Wired magazine's circulation had risen to 300,000 in three years, and HotWired, a pioneer of advertising-based Web content, had become hot online real estate. Investors such as Softbank's Masayoshi Son and Si Newhouse's Advance Magazine Publishers lined up to invest in Wired's B round of investment, which closed just before the IPO prospectus was filed (Softbank ultimately shied away). But almost immediately after the filing, reports appeared questioning how a company with $25 million in revenues could boast a market value of $450 million. In retrospect, of course, Wired was ahead of the curve: Earthweb went public in 1998 with annual revenues of only $1.1 million, and Theglobe.com did the same with revenues of less than $1 million. Today, they trade at market caps of $315 million and $500 million, respectively. Part of Wired's troubles came from bad timing. The Nasdaq Composite Index -- the bellwether yardstick for the technology sector -- slid 19 percent in the seven weeks after Wired filed its IPO. Worse for Wired, the SEC was giving its prospectus close scrutiny. In July, right after Wired put its IPO on hold, the Nasdaq started a 15 percent rebound. In October, the company updated its prospectus with a $42 million loss, largely caused by a charge related to the merging of Wired magazine with HotWired; the loss was on paper only, but it fueled more skeptical news stories, as did the company's revised valuation of $272 million. Meanwhile, lead underwriter Goldman Sachs grew increasingly disenchanted with the inexperience of CEO Rossetto and president Metcalfe. On Oct. 25, the day after Wired's stock was to be priced, the company withdrew its IPO. As if to underscore Wired's bad timing, the Nasdaq surged ahead 36 percent in the following year. Wired began scouring for private investors, but few stepped forward, and Goldman provided few leads. The company approached Newhouse's Advance, but it declined this time. In December, Tudor, which owned 16 percent of Wired's B shares, brought in Providence as a potential investor. Providence and Tudor agreed in January to invest $21.5 million for C-class preferred shares. But the investors attached a condition that would prove crucial: Any new round of investment in Wired required the consent of the C-class shareholders. From the moment Providence invested, the fund's managing director Paul Salem -- shunning the patient nurturing that often defines West Coast venture capitalists -- plotted an exit strategy. "Two months after the C's came in, it was clear Paul Salem just wanted to get out as fast as he could," said a Wired shareholder. For Salem, that proved complicated. Rossetto fought him at every turn, and the company needed more money. "All along, the company wasn't adequately capitalized," said another person close to the talks. "They kept taking smaller investments than they would actually need." By mid-1997, Wired had scaled back its multimedia ambitions: Overseas magazines, a book publishing arm, several HotWired "channels" and Wired's "Netizen" TV show had all been aborted. Recruiting firm Heidrick & Struggles had begun searching for a new CEO, signaling an imminent end of Rossetto's reign. Around this time, the Wired board began looking for an investment bank to find new financing options, including a possible sale of the company. Morgan Stanley and Lazard Freres each made presentations to the board; the board chose Lazard -- despite a potential conflict of interest, since directors of Lazard were limited partners of funds controlled by Providence. Lazard looked for a buyer throughout the fall, and by December, word leaked out that Wired was on the block. In sore need of funds, Wired tried to find a loan. Toronto-Dominion, a Canadian bank and another investor in Providence, offered a $25 million loan and then, mysteriously, backed out. Instead, Providence offered, and Wired's board accepted, a $10 million line of credit (it used only $5 million in the end) with more conditions attached: Six of the board seats would go to Providence and Tudor -- giving the C-class shareholders control of the board -- and most of the A and B shares would go into a voting trust that would control their votes regarding any sale of the company. The person in charge of the trust would be Raymond Mathieu, Providence's chief financial officer. Providence had completed a cunning and methodical coup, winning the power to sell Wired quickly. But though Lazard talked with 39 companies, few offers surfaced. Of those, most wanted either Wired magazine or the Internet properties, not both. In March 1998, Lazard secured a $77 million bid from Miller Publishing Group for Wired's print and TV business -- an offer that Lazard deemed the best possible deal. But after word of the Miller deal was leaked to the San Jose Mercury News, Newhouse's Advance topped the offer with a $90 million bid. As part of the deal, Rossetto and Metcalfe left their executive posts for a severance payment of $1.5 million each. CFO Jeff Simon's severance was $1 million. The $90 million, Wired's board agreed, would go into the remaining online operation, to ready it for an IPO. But Salem wanted to keep open the option of an acquisition, and asked Lazard to find a buyer. After talking with NBC and 12 other suitors, Wired received a formal offer from Lycos of $140 million on July 28. Once again, a market slump hit at the worst possible moment for Wired: While the board was considering the Lycos offer, the Nasdaq Composite Index tumbled 25 percent in midsummer. In late September, Lycos pressured Wired to lower its sale price to $95 million -- a 32 percent discount. The board agreed in early October, overriding concerns by Metcalfe and Rossetto (who still sat on the board) about low valuation and other pricing terms. Again, Lazard issued a letter saying the deal was fair in general, but didn't say whether it was fair to the different classes of shareholders. Typical to Wired's bad timing, two days after the deal was signed, the Nasdaq started a rally that would carry it up 77 percent in four months. All seemed to be going smoothly until Lycos filed an S-4 document to the SEC on Nov. 25. Again, the SEC gave the deal a close read. After regulators responded to Lycos 55 days later -- nearly double the 30 days it spends on the vast bulk of filings -- Lycos added eight pages to the 72-page filing. Judging from text that was added or changed in the amended S-4 filed on Feb. 2, the SEC had a lot of questions, not just about Lycos, but also about Wired's business plan, its related risks and how Lycos shares would be distributed to different classes of shareholders. High up in the revised S-4, Lycos outlines a range of potential conflicts of interest among Wired board members and executives. Metcalfe and Rossetto each get their $1.5 million severance pay on an accelerated schedule, plus their A-class shares. President Beth Vanderslice gets an estimated 3 million common shares. Providence and Tudor face another possible conflict as C-class shareholders who control the board and the approval of the merger: "Their interest as stockholders or otherwise may differ from the interests of Ventures stockholders as a whole ... There may be potential conflicts regarding the amount and allocation of the stock," the filing says. Finally, the new filing discloses Lazard's potential conflict arising from its managing directors' role as limited partners in Providence funds. Nonetheless, despite the disclosure of all these potential conflicts, the filing declares on the same page: "The Ventures board of directors has determined that the merger agreement and the merger are in the best interests of Ventures and all its stockholders." N E X T_ P A G E .|. The ABCs of stock distribution -- who gets what and who should get what? - - - - - - - - - - - - - - - - - |
Arts & Entertainment | Books | Comics | Life | News | People
Politics | Sex | Tech & Business | Audio
The Free Software Project | The Movie Page
Letters | Columnists | Salon Plus
Copyright © 2000 Salon.com All rights reserved.
