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Old 01-03-2002, 12:33 PM   #1
Czar

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Post eUniverse to Buy L90

Well, that was unexpected...

Profitable publicly-traded web publisher eUniverse (which operates Flowgo, Cupid Junction, and a host of 'fun page' sites) has opened the year by announcing an unusual bid to acquire ad rep and technology provider L90.

For more:
http://www.internetnews.com/IAR/arti...948111,00.html

There's little doubt that they're making the purchase at an opportune time, but I'm personally surprised that they beat traditional media plays to the punch in this. L90 has been ripe for acquisition for some time (as ValueClick also is, but they're in DoubleClick's corner), but admittedly lost much of their appeal upon palming most of their tech assets off to DoubleClick a few months back.

Thoughts? Consequences? Anyone still using them as an ad rep?
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Old 01-03-2002, 02:21 PM   #2
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This falls under the category of weird.

The big concern I'd have is that eUniverse has been profitable, and now they're messing with that. L90, OTOH, has been more unprofitable than eUniverse has been profitable, so it wouldn't surprise me if this deal crushes them under its own weight (see Excite@Home). The only ones I'd bet on winning on this is L90 shareholders.
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Old 01-03-2002, 04:11 PM   #3
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I don't buy the idea that L90's losses are going to crush eUniverse. If eUniverse was to be a victim of the ad recession, it would have happened long ago.

Instead, I see the eUniverse management making some sweeping changes to the way L90 operates as a network.

I suspect you'll see a bit of a blip in profitability as the two companies get merged, but I expect eUniverse will likely still be profitable for calendar 2002.

We're talking about an internet media company that just RAISED their profit targets for the next two quarters. They're doing something right...

-Scott
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Old 01-03-2002, 08:27 PM   #4
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eUniverse ,I believe that they terminated their affiliate network last year with many sites being a casualty of it.

And if they acquire L90, I think that eUniverse would be going the same procedure all over again. I strongly suspect they're trying to establish another ad network very much like the Hey days of internet advertising and if everything goes bad again, well they can basically disappear again and terminate their network again.

But that's just my thought. If only left a few players in the online advertising industry, these are the big boys when the industry rebound, cause then the old business rules kicks in...Demand will be higher than Supply and we should see a reverse in prices for advertising online again.
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Old 01-03-2002, 09:45 PM   #5
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The merger really adds no value euniverse unless they want to get L90's people or brand . Euniverse could acquire all of L90's publishers and many of their advertisers free of charge and L90 no longer has its admonitor technology. I suppose euniverse
I suspect L90 accepted a low price.
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Old 01-03-2002, 10:02 PM   #6
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I disagree that the merger adds no value to eUniverse.

Despite being handcuffed by the expectations set when they launched a $100 million IPO, L90 still has a revenue run-rate of nearly $35 million/year (eUniverse is at about $25 million).

I think eUniverse can adjust the operations of L90 to staunch the cash bleed by take advantage of the synergies of the two companies.

Also, L90 has been shopping themselves for a while. Evidence of how anxious they were for a buyer can be found in the structure of this deal. The deal calls for about $2.20/share in cash for all L90 shareholders. Interestingly, only $.20/share actually comes from eUniverse. The rest comes from L90's $58 million bank balance.

At the end of the merger, eUniverse will put up about $5 million in cash to aquire a company with $3 million cash left in the bank and revenues of $35 million. Net cost to eUniverse: $2 million cash.

Not a bad deal (at least in my opinion).

-Scott
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Old 01-03-2002, 10:23 PM   #7
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I wonder if the deal goes through if euniverse will change the high ad serving fees that l90 charges publishers?
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Old 01-03-2002, 10:46 PM   #8
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Scott,

The problem is that L90 really has no tangible business. L90 no longer possesses the once promising admonitor technology, and has no other tangible assets with the notable exception of its brand. In taking over L90 they are only gaining L90's employees and entering what has become a low margin business. L90's 35 million in revenues is more like 18 million under current market conditions and a majority of that 35 million is the publishers share (unless they were paying all their publishers negative money) . In addition despite their considerable revenue L90 has a history of money loss(even under strong market conditions). With respect to synergies, most of those come from eliminating "duplications" or redundancies. There is no point in acquiring L90 for their employees when one intends to fire them.

I suppose that L90's 58 million bank balance would be the only real plus for eUniverse. In my opinion the value of the combined companies is significantly less than the 58 million bank balance.

Last edited by Anion; 01-03-2002 at 10:53 PM.
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Old 01-04-2002, 04:31 AM   #9
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eUniverse is doing something right. The problem isn't them, though. It's L90. The only reason they've weathered the storm is all that cash, 95% of which is going out the window.

It seems to me Bear Sterns is very unbelieving of eUniverse's expectations, as I'd think anyone who covers L90 would be. I don't think them stumbling over that analyst's questions helped either. Granted, eUniverse has to make these claims because if they can't turn L90 from its $10 million loss last quarter into something profitable or at least close to it soon, they really don't have the money to sustain it.

That's the beauty of lowered expecations.

eUniverse wants L90's reach. The free (if not free, cheap) advertising (see Altavista/Engage) is the big selling point, along with the incredibly cheap purchase price. The problem as we've seen so often in the past is that reach doesn't always mean a better bottomline (growth plans getting in the way of actual growth).

I agree it's a great deal on the surface. Getting a company L90's size for $2 million is like Dynegy getting Enron, which, granted, they were smart enough not to do in the end. The problem becomes: is that steal worth it? eUniverse barely has $2 million as it is, and besides that, L90 keeps losing ridiculous amounts of money.

Quote:
unless they were paying all their publishers negative money
That's another story altogether.
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Old 01-04-2002, 11:32 AM   #10
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I guess the discussion of whether L90 has a "tangible" business boils down to opinion....

I think it does have a tangible business. I think this is a great deal. Especially for eUniverse.

Being part of a company that recently announced a deal with L90, I may be biased.

-Scott
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