2HRS2GO: Ventro has to search hard for a buyer

4 min read

COMMENTARY -- Monday ramblings:

Ventro (Nasdaq: VNTR) seeks a buyer or merger, Upside Today reports. Technology M&A specialist Broadview is on the case, according to the magazine.

Rumors about a acquirer for Ventro have been floating around for several weeks following the company's disappointing second quarter report. VerticalNet (Nasdaq: VERT) publicly denied any interest. Upside says CommerceOne (Nasdaq: CMRC) rejected an approach from Ventro executives.

The surprise isn't that Ventro was rebuffed, but that the stock market gave credence to the idea at all -- Ventro shares earlier this month rose slightly on M&A hopes. Shareholders shouldn't place too much faith in this takeover buzz, because their company isn't going to command a great price, assuming it finds a rescuer at all. There simply isn't much to buy.

Technology? Offerings from Ariba (Nasdaq: ARBA), CommerceOne (Nasdaq: CMRC), Oracle (Nasdaq: ORCL) and i2 Technologies (Nasdaq: ITWO) are held in higher regard by most observers.

Marketplaces? B2B exchanges in general have lost their luster on Wall Street, but even if they hadn't, Ventro's setups haven't produced as much business as analysts hoped for -- thus the second quarter letdown -- and they're built on the aforementioned proprietary platform.

Why spend millions for stakes in Chemdex or Promedix when you can build your own for the same price or cheaper? How hard would it be for Healtheon/WebMD (Nasdaq: HLTH) -- to use a purely hypothetical example -- to build its own medical equipment marketplace on a CommerceOne or i2 platform?

The best investors might ask is that Ventro finds a partner for its ventures. It wouldn't immediately solve the broader problems, but at least there'd be someone to share the pain.

Lernout & Hauspie (Nasdaq: LHSP) and its ongoing saga about revenue reporting provides plenty of entertainment, but it also underscores long-time weaknesses in the Securities & Exchange Commission's rules.

Well-known financial writer Herb Greenberg has been pounding the drum against L&H seemingly forever in TheStreet.com, and The Wall Street Journal joined in over the last few months. Today the Journal has an unintentionally humorous article in which L&H essentially says "Yes, believe it or not, our customers do exist."

I would hope so.

Good journalists raise questions ahead of the curve, and Greenberg and others deserve credit for doing so. But a few basic changes in the SEC's rules could have helped investors apply the same cautions long before now.

A huge part of the problem lies in the rules for foreign issuers like Lernout & Hauspie. Overseas companies don't have to file 10Q reports and other disclosure forms required for firms based in the United States. This is wrong -- if you want to tap into the U.S. public's capital, you should abide by the same accounting and reporting rules as U.S. firms, as long as those regulations don't directly contradict your own country's laws. In a few instances they do.

The other problem: reporting requirements for all companies, U.S. or otherwise, aren't stringent enough. Investors ought to know where their company's revenue is coming from; a publicly-traded firm should be forced to disclose its customer list and the revenue generated by each. At least reveal a certain portion of it, such sales figures for the 10 largest customers, or top-selling regions in the case of a retailer, or both in the case of like Microsoft (Nasdaq: MSFT) with multiple distribution channels.

Many companies already report that information. In the case of an IPO, they have no choice.

But that rule should be extended to all stocks, in quarterly and annual reports, domestic or otherwise. And relationships should be outlined -- does the company also hold a stake in its customer, or participate in a joint venture with it?

It's not much to ask.

A colleague notes that Intel (Nasdaq: INTC) doesn't carry an outrageous valuation for a technology stock.

That's true if you think of "technology" as a whole. Software vendors and makers of cutting edge networking equipment command far higher multiples.

But if you narrow it to the chip sector, you see Intel is one of, if not the, most highly valued stock in there. Assuming that stock valuations are based on growth -- arguably a fantasy, but it's the prevailing view -- Intel looks expensive, because it's not the fastest growing chip company out there. Its growth looks especially slow compared to those e-business software purveyors, optical component manufacturers and other highly valued stocks.

Intel is big. It will be around for a long time. We all know that.

Unfortunately, it doesn't look like a high growth company. So why is it valued more than its semiconductor peers? 22GO>