The Battle Outside the Box

On Thursday’s M&A news front, unified messaging was the buzz, as JFAX.COM (JFAX) announced plans to acquire rival, eFax.com (EFAX). Specializing in delivering fax and voicemail messages directly to individuals’ e-mail addresses, the two companies will together reach a user base of 2.8 million free users and 125,000 paid subscribers.


JFAX.COM will issue 18.5 million shares, worth approximately $74 million, to eFax.com shareholders, in addition to a $5 million loan to help fund eFax’s working capital needs.


The Road Less Traveled


Efax.com debuted years ago in mid-1997, along with fellow Class of ’97 IPO graduates Amazon.com (AMZN) and Peapod (PPOD). The last three years have proved to be either boom or bust for these budding Net startups. Either you’re Time’s Man of the Year, or a hapless victim of Barron’s frequent hit pieces.


Hovering just over $4 per share of late, eFax recently looked like it was in danger of heading down Peapod alley. That is, until rival JFAX came knocking, offering to bail the troubled veteran out of its looming financial no-man’s land.


Public only since July 1999, JFAX hasn’t had a smooth ride either. Debuting at $9 1/2, the company’s all-time high has never reached $11 per share. Currently trading just above $4 itself, JFAX hopes to attack the unified messaging industry en masse before falling victim to its own poor future financial prognosis.


Free for All


Armed with a unique local telephone number that catches all incoming messages, users of both JFAX and eFax need only check a single e-mail account for faxes, voicemail, and e-mail messages. Since eFax offers most of its services for free, it boasts a top-notch subscriber base of over 1.6 million users. JFAX intends to combine eFax’s broad consumer base and well-known brand with its technological platform and stronger cash position to stake its claim on the unified messaging industry.


For both companies, however, the method of securing thousands of individual telephone numbers is both costly and time-consuming. Competitor Onebox.com, on the other hand, boasts a similar free unified messaging service, while circumventing excessive start-up fees of its own. Free comes at a price though, and Onebox’s knock is an additional four digits added onto an already cumbersome ten digit phone number. Regardless, the industry is in the midst of a shake-up, as the wireless boogeyman casts an ominous shadow over small, unified messaging players.


The Wireless Web


While Web-based retrieval of faxes and voicemails is a neato app, wireless threatens to boast the only game in town. Looking to stay competitive, both JFAX.COM and eFax.com have begun offering its services to wireless users in the last six months. With wireless offerings coming on like a hot knife through butter, this merged company looks like a new set of steak knives in the wireless world, right?


Wrong. While JFAX bills its customers $12.50 per month and eFax $2.95 for wireless service, Onebox.com offers wireless users the same service for free. And, what’s more, Onebox.com was recently scooped up by sizzling sugar daddy, Phone.com (PHCM). The wireless darling purchased Onebox.com for a cool $850 million, making JFAX’s $74 million acquisition of eFax look like spare change.


Since the announcement to acquire Onebox.com, shares of Phone.com have soared over 90 percent, before falling back to just over $117 per share. Despite this, it still boasts a monstrous market cap of $8 billion. The 800-pound wireless wunderkind is e

stablishing itself as JFAX’s worst nightmare.


Wireless juxtaposition


No doubt, the move toward consolidation is one of self-preservation for JFAX and eFax. In a fiercely competitive market with the likes of Onebox.com coming out of the woodwork, joining forces should help the merged company keep its head above water in the unified messaging industry.

However, in a cruel twist of fate, the explosion of wireless is an odd juxtaposition for companies like JFAX. Without the Net’s newest killer app, upstarts like these would find themselves dead in the water. But now with better-equipped competitors, boasting enviable war chests and scrambling to grab fistfuls of market share on its doorstep, JFAX’s outcome may already be decided.


















DealTracker scorecard: JFAX.COM/eFax.com

Investor
sentiment
B-
Terms of the
deal
B
Industry
outlook
C-
Overall
scorecard
C+


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