Napster: Prepped For Quick Sale
July 21, 2008 at 11:34 AM (PT)
Like a turkey being prepped for a THANKSGIVING DAY oven, BLOOMBERG reports that NAPSTER is prime for acquisition -- sooner rather than later. It has become takeover bait for hedge funds because its cash on hand exceeds the company's market value.
The price of NAPSTER's shares has plunged 95% in six years, lowering their value to $52.1 million. At the same time, NAPSTER currently has $69.8 million in cash and investments as of MARCH 31st.
The report cites NEW YORK hedge fund JDS CAPITAL MANAGEMENT as a likely buyer for NAPSTER, since it also owns digital-music retailer eMusic.com. "That's the type of strategic buyer you need," MUNDER CAPITAL MANAGEMENT Portfolio Manager KEN SMITH said. "The valuation's absolutely dirt cheap ... The scenario that provides the highest value for shareholders is a sale to a strategic buyer."
You can buy Napster for less than its liquidation value. It's just a matter of time before people realize that
Indeed, JDS bought 1 million shares of NAPSTER in the first quarter, according to filings.
How did NAPSTER come up with so much cash? BLOOMBERG reports that CEO CHRISTOPHER GOROG cut sales and marketing expenses 90% to $18 million in the year ending in MARCH, as revenue rose 15% to $127.5 million.
"Investors are recognizing that at these levels, it's definitely an attractive takeout play for somebody,'' PIPER JAFFRAY & CO. analyst MICHAEL OLSON said.
Another potential buyer could be chief rival, RHAPSODY which is owned jointly by REALNETWORKSand MTV NETWORKS. "REALNETWORKS could come in and add those subs to their subscriber base,'' said OLSON. "Given where the stock is now, it wouldn't surprise me if someone were to pull the trigger on a takeout in the next 6 to 12 months."
"NAPSTER is a very important strategic asset the market's valuing at zero," added THOMAS SAILORS of CLOVERDALE INVESTMENTS LLC, which now owns 625,000 shares of NAPSTER. "You can buy NAPSTER for less than its liquidation value. It's just a matter of time before people realize that."