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Riches to Rags

It's a striking image indelibly etched in Net investors' minds. Stephan Paternot and Todd Krizelman parading in front of the Nasdaq market site wearing T-shirts and blue jeans, sporting Cheshire grins that could only belong to two twenty-something co-founders who just conquered an opening day record with their smash hit theglobe.com (TGLO).

From $9 bucks to $90 in just under sixty seconds, the wunderkinds set off a brushfire of would-be cyber-entrepreneurs who scrambled to follow suit. My, how times have changed. What goes up must come down, and once investors were saddled with a savage case of vertigo, the company's stock price was thrown overboard faster than an unwelcome stowaway.

Both pioneers have since been put out to pasture in favor of more seasoned management, but there won't be any happy ending for this riches to rags story. Just an important lesson learned. Getting to the top isn't the hard part. It's staying there. And sometimes being numero uno can be more of a burden than a blessing. Which conveniently leads me to the latest water cooler chat about another high-wire act.

Sunnyvale-based VA Linux Systems (LNUX) wrestled the IPO record from theglobe.com just over a year later. The open-source irrational exuberance produced a 700% moonshot that had Alan Greenspan pitching a fit. Linus Torvalds walked on water, and Internet boom times had never tasted so good.

Fresh off its celebrated 52-week high of $320 per share, VA Linux looked to share the wealth. The company unveiled plans to snatch up Andover.net (ANDN) , a techie Web site that underwent a massive Linux makeover en route to its own wildly successful IPO. In a Linux fever pitch, the newly repackaged Andover smelled sweeter than sweet, and VA Linux was in the mood to stop and smell the roses, to the tune of one billion bananas.

I used Andover myself long before the site hit most investors' radar screens, and I was floored by the bloated price tag. It's a great resource, but somehow I couldn't shake the feeling that VA Linux got hoodwinked by the hoopla. After all, fair's fair. But, this one looked like highway robbery.

Well, in a curious turn of events Wednesday, VA Linux announced plans to amend the terms of its deal with Andover. In addition to the lucrative stock swap, the original courtship called for $60 million in cold hard cash to be hand-delivered to the blushing bride-to-be. But, faster than a New York minute, all the leaves have fallen off the money tree; and in this latest market downturn, it's time for VA Linux to circle the wagons.

The company lopped off the cash payment, and not one to look a gift horse in the mouth, Andover graciously accepted. Just two short months later, the modified deal is valued at roughly $300 million. The share prices of both companies have been put through the spin cycle, both tumbling 85% off their 52-week highs.

The good news is that Linux players are finding a bottom, and there's probably never been a better time to buy the leaders. Big fish will continue to gobble up the guppies, and the open source OS has a future so bright, it's got to wear shades. Pundits are already penning Linux' last chapter, but I'm betting its best days are ahead. Just a bit more grounded in cyber-reality.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.