A Fate Worse Than Death

The U.S. Open is upon us, and tourists have descended on my sleepy little
town like locusts. An unusual heat wave earlier this week sent northern
Californians running for shade, but yesterday afternoon we were treated to
a heaping dose of chilly London fog. Sounds like a terrific analogy for all
the crazy weather we’ve been experiencing in the markets this summer.

It looks like CDNow made a boneheaded mistake of
counting the proverbial chickens before they hatched. The music e-tailer
prematurely announced it was close to narrowing down a laundry list of
prospective merger partners earlier this month. But now there are
indications that plans are starting to come unraveled.

Yesterday, the company said it may entertain offers below its current share
price. That’s bad news for day-trading bargain hunters who eagerly
anticipated a bailout or buyout just around the bend. Apparently, the
struggling jukebox is having terrible difficulties finding a reasonably
interested party. Not surprisingly, that’s in lockstep with a growing trend
amongst failing Web companies of late.

We’ve seen a gaggle of going-out-of-business sales since the beginning of
the millennium. And one thing that’s prevalent, is many acquiring companies
are choosing to remain idle and watch the mounting list of Web start-up
implosions continue to unfold. The reason is pretty simple. Most
disappearing dot-coms don’t have anything an acquirer would actually want
or need.

Rather than dig a bevy of me-too competitors out of holes and assume
burdensome debt through merger or acquisition, some buyers would just as
soon pile on another shovel-full to speed up the inevitable collapse. Take
CDNow for example. Interested parties likely favor seeing the company go
under completely to facilitate an easier time of picking through the ashes.
Forget the brand. What assets? Buying a la carte makes a lot more sense to
acquirers who only have a cursory interest in the company’s customer list

That’s been the rule of thumb with recent additions to the dot-com
boneyard. Boo.com had to shut the lights before buzzards made short
work of the online fashion retailer’s scant assets. Same with
eParties and Petstore.com. The list goes on and on, but the
message is loud and clear. It’s cheaper to pull the gold watch off a stiff.

There’s not really a bidding war going on in the trenches amongst
well-heeled rivals or brick-and-mortar buyers. He who has the gold makes
the rules; and right now, the rule of the day is to simply sit back, watch
and wait. An early consensus on the Street had predicted sweeping
consolidation at bargain basement prices. But what’s materialized instead
is a game of limbo. How low can cash-needy Nets go? For patient
deep-pocketed buyers, not low enough.

Any questions or comments, love letters or hate mail? As always, feel free
to forward them to [email protected].

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