MARKET COMMENT
Join The Dot Coms

By Christopher Spink
January 22, 2001

Carburton Street, London -- Everyone knows that the dot com bubble has burst. Last Spring many individual investors picked up shares in enterprises that promised to produce miraculous profits out of the ether.

Major backers of such start-ups are now taking a more mature view, demanding that dot com managers either 'put up or shut up'. Banks, venture capitalists and institutional investors are reluctant to pour more money into such ventures without the signs of some tangible return on their money, i.e. a profit.

Private investors with shares in such companies should also be aware of the stark choices facing them. Only companies that can get to profitability with their existing cash resources will survive. Others may go to the wall, making the shares worthless.

For those Internet companies now operating in such an environment there is a third way. Many might consider biting the bullet and consolidating their resources with rival operators in their field, in a bid to cut costs and conserve cash. Expect an increasing number of takeovers in the dot com arena.

e-Takeovers?

This trend started to happen last year. Most high profile was electrical retailer Dixons' (LSE: DXNS) desire to sell its 80% stake in Internet access provider Freeserve (LSE: FRE). Rumours circulated about a possible continental buyer for most of 2000, before France Telecom's Wanadoo ISP produced a £1.65b bid in early December.

Bargain e-tailer Lastminute.com (LSE: LMC) also joined forces with a French operator, Degriftour, last August. The group used £27.1m cash and 19.7m shares to snap up the latter company for £59m. Who is to say that Lastminute may not get together with travel agent eBookers (Nasdaq: EBKR)? This is an area where Lastminute has always struggled and eBookers needs the cash that this consolidation would give.

In September another e-tailer, privately-held Jungle.com was snapped up for £37m by Great Universal Stores (LSE: GUS) to bolster its highly successful Argos online shopping site.

Another private company, personal finance site MoneyeXtra, has had three separate owners over the past year. Its founders sold the group to the Exchange (LSE: EFX) for £10m who in turn sold it onto the Bank of Ireland (LSE: BKIR) for £26m cash.

In this area of financial information, Globalbnet Financial (LSE: GLFA), the owner of UK-iNvest, tried to merge with Telescan (Nasdaq: TSCN) last summer in a £200m ($332m) deal. This may mean that Globalnet might talk to other players in this field, such as cash-rich Interactive Investor International (LSE: IIN) or fledgling ADVFN (LSE: AFN).

Sports content providers could also merge. Last year satellite and digital broadcaster BSkyB (LSE: BSY) bolstered its online operation by buying Sports Internet for £301m in an all-share offer last May. Perhaps fellow sports sites 365 Corporation (LSE: TSF) and Teamtalk.com (LSE: TTK) should start chatting?

Internet incubators also look ripe for further consolidation. Last year New Media Spark (LSE: NMS) took over Softtechnet for £33.5m and Internet Indirect for £80m. Further mergers may take place in this area.

Cash is king

These developments may change the nature of many dot coms, used to publishing diametrically opposed business plans to differentiate themselves from their rivals. However, many new media deals have often taken on the appearance of partnerships.

Cash-strapped companies will have to jump into bed with rivals in order to conserve resources, unless they want to die alone, starved of funding in today's harsh investment environment.

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