2HRS2GO: Paging Network buyers engage in a Vast experiment
A question for all would-be owners of Vast Solutions:
Is a beta test worth $95 a share?
It's worth asking, in light of recent interest in shares of Paging Networks (Nasdaq: PAGE), which plans to spin off its Vast Solutions wireless technology subsidiary. PAGE stands as one of the most heavily traded issues in recent sessons, with volume of more than 25 million the first two days of this week and more than 27 million shares traded so far today. PAGE has gained 162 percent from Friday's close.
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The stock isn't trading on news, since there isn't any. There probably won't be much news until Paging Networks completes its merger with Arch Communications (Nasdaq: APGR) that was announced in November. The companies hope to conclude the deal sometime in the first half of this year, says Scott Baradell, Paging's vice president of corporate communications.
Part of that merger calls for Paging Networks to spin off most of Vast Solutions to bond and stock holders. Vast specializes in wireless technology, one of the stock market's current buzzwords.
Until recently little detailed information was available about the planned spinoff, but a couple of weeks ago Paging Networks delineated the merger plan in an S-4 registation statement filed with the U.S. Securities and Exchange Commission. Attached to the S-4 was a prospectus for Vast.
Given that it's highly unlikely the stock market suddenly turned 180 degrees and decided to buy into the Paging-Arch merger after dumping on it for two months, you can reasonably conclude stock buyers focused on the new filings for the Vast spinoff.
If only it were a vast spinoff for Paging Network shareholders.
Instead, holders of debt instruments carry the most weight in this party. Paging's senior notes will be converted into the largest portion, 44 percent, of the combined company, although the new entity will keep the Arch name. Bond holders also get 68.9 percent of Vast. The new Arch will own 19.5 percent of the wireless entity.
PAGE stockholders get 11.6 percent of Vast's equity, or 2.32 million shares. The latest quarterly report available for Paging Network lists 103,960,240 common shares outstanding, or 44.8 shares of PAGE for every share of Vast. Multiplying that number by today's Paging Networks price of 2 1/8 (at least the last time I checked), you'd have to figure on paying roughly $95 to get one share of Vast.
Would-be public companies wouldn't just kill, they'd commit mass murder, to get an IPO price on that level. The number means little to Vast because the company receives no cash, but it's good for its corporate ego.
It's especially good considering Vast doesn't have much of a business yet. Vast hopes to make good on its plan to sell technology that lets businesses set up wireless access to their internal networks and the Internet, but for now the operation is classified as a development stage company, or the corporate equivalent of a beta. In fact, many of Vast's planned offerings really are in beta testing, according to the Risk Factors listed in the prospectus.
You certainly can't judge Vast on its finances, which include a net loss of $22.5 million on revenue of $809,298 for the first nine months of 1999. Until the company is operating on its own instead of being propped up by its Paging Networks sugar daddy, and until Vast has its full product line up and running, it's impossible to draw conclusions about long range success.
Even dot-com IPOs, ridiculous as some of them may sound, generally have more concrete histories. At least you can get some idea of their prospects based on past performance. With Vast you're taking a leap into the great unknown, and paying a very high price to do so.
But it's a trader's market these days, so why worry about it, right? Just play your cards intelligently and know when to fold.
Other issues:
First Call has gradually been adjusting its consensus estimates since the Financial Accounting Standards Board last year gave its blessing to the corporate practice of excluding the cost of goodwill amortization in reports of operating income. But it's a slow process, and far from complete, so currently some First Call estimates leave out goodwill writedowns and others don't. First Call charts usually note if goodwill has been excluded.
The Nortel estimates chart didn't make that notation, but given the overwhelmingly positive reaction from Wall Street, the most analysts probably filed earnings forecasts without amortization costs.
If that's the way the accounting board wants it, fine, but apparently not all analysts get the message yet. First Call doesn't start listing goodwill-excluded estimates for a company until most analysts give the indication, says Chuck Hill, First Call's director of research.
"Problem is, you can't force a majority of analysts to switch over," Hill says. "If we went out and said, 'You have to do it (exclude goodwill) for all companies,' there'd be a lot of screaming."
Hill expects all analysts will be on the same page by year's end. "But until then, it's going to be a mess."
Still, it's strange to think of financial TV journalists as "babes" or "dudes". Can you picture former NBC economics correspondent Irving R. Levine as a sex symbol? 22GO>