From: Adam Rifkin -4K (adam@XeNT.ics.uci.edu)
Date: Wed May 03 2000 - 02:29:32 PDT
Xcelera's stock (XLA) has bounced back some since this was written, but
it's still a fairly interesting addition to the continuing story of one
of the greatest pump-and-dumps of the bubble market of the 1990s. I
love the existence of this stock because it truly illustrates how crazy
a stock market can get. Remember that, even though it's down 66% from
the high, it's still up 25,000% from a year ago. Not too shabby.
> Vik's vapor stock
> How press releases and dot.com name gassed up a 74,000 percent balloon
> By Christopher Byron
> MSNBC CONTRIBUTOR, April 25, 2000
> An extraordinary company has been getting the attention of investors
> lately. The company in question -- which bears the recently acquired
> cyberspace moniker of Xcelera.com -- turns out to be headquartered not in
> Silicon Valley, or indeed anywhere else within the lawful jurisdiction
> of the United States, but in a post office box in the breeze-caressed
> offshore tax haven of the Cayman Islands.
> THIS IN TURN means that Xcelera.com Inc., doesn't have to file
> quarterly financial statements with the Securities and Exchange
> Commission or anyone else. And since the company doesn't have to, it
> doesn't. Instead, the company reports only once a year on its business
> and financial affairs.
> And since the latest such report was filed last August and covers
> the fiscal year that ended in January 1999, there are no current
> financials to explain the fact that between then and, oh, about three
> weeks ago, Xcelera's stock price soared from 30 cents per share to $223
> per share -- which is to say, rose by more than 74,000 percent in value --
> which is, I would suspect, the greatest one-year rise of any
> exchange-listed stock in the history of Wall Street.
> ALEXANDER VIK's MANEUVERINGS
> Our story on these matters begins back in the late 1980s, when a
> Greenwich, Conn., investor named Alexander Vik led the takeover of an
> obscure American Stock Exchange-listed, closed-end investment trust
> bearing the name The Scandinavia Fund. Mr. Vik moved the business into a
> privately held investment firm he ran out of Monte Carlo (Vik Brothers
> International), and from there to the Cayman Islands, where, in 1993, it
> wound up in possession of a hotel in the Canary Islands.
> Until dot-com mania began sweeping Wall Street five years later,
> running that hotel was about all The Scandinavia Company really did. But
> then, in June 1997, a struggling Internet outfit named Mirror Image
> Internet AB began trading on the Stockholm Stock Exchange at roughly a
> dollar per share, and not long afterward it looks to have caught the eye
> of Mr. Vik, who began acquiring stock in the company.
> Yet Mirror Image was no General Motors. The company had no
> material revenues, no income, and no assets except for the money that
> The Scandinavia Company had begun pumping into it. By spring 1999,
> Mirror Image's disappointed investors had knocked the shares down to
> barely 4 cents each, giving the entire company a market value of not
> much more than $700,000. Yet by this time Vik and the boys were already
> in the hole to the tune of $5.9 million for more than half the company's
> LAVA FLOW OF PRESS RELEASES
> It was at that point that Mr. Vik and his company, apparently
> anxious to pump some life back into their collapsing investment,
> suddenly erupted in a lava flow of press releases about Mirror Image.
> Thus, on April 1, 1999, The Scandinavia Company issued the first of more
> than 50 press releases on Mirror Image -- this one declaring that the Vik
> group had acquired a majority interest in the company, which the release
> described as "a leading Internet caching company."
> In fact, in the quarter that had ended right before that press release
> was issued, Mirror Image had booked revenues of barely $240,000. The
> Scandinavia Company's own August 1999 filing with the Securities and
> Exchange Commission described Mirror Image as a "startupS lacking
> Rsignificant revenues or expenses,S and with no material assets other
> than the $5.9 million that the Vik crowd had pumped into it.
> On a recent appearance on CNBC's popular weekday-morning Squawk
> Box program, Mr. Vik was asked by the show's avuncular anchor, Mark
> Haines, whether he didn't think it odd that, if Mirror Image's
> technology was so valuable, the company would have been willing to sell
> half its equity to Mr. Vik's outfit for less than $6 million when "there
> are oceans of venture capital money looking for ideas to invest in."
> Mr. Vik answered: "The reason for that is that the company started in
> Sweden, and in Sweden, you know, a year or two ago, there weren't oceans
> of venture capital money looking for companies."
> In fact, though Mr. Vik maintained in an interview with me that
> he did not relocate Mirror Image from Sweden to the United States until
> 1999, Mirror Image itself had issued a press release a full year
> earlier, in April of 1998, describing itself as being "based" in Woburn,
> Mass., in the very heart of Massachusetts' high-technology corridor
> along "oute 128. It stretches credulity to believe that the venture
> capital community of Boston, which had already pumped huge amounts of
> money into such Internet caching-related startups as Sycamore Networks
> Inc. and Akamai Technologies Inc., was oblivious to the existence or
> potential of this firm -- especially when Mirror Image had been issuing
> its own press releases all along, claiming business ties with Cisco
> Systems Inc. and others.
> STOCK EXPLOSION
> Be that as it may, no sooner did The Scandinavia Company's press
> release get distributed on the World Wide Web on the morning of April 1,
> 1999, than The Scandinavia Company's stock exploded, tripling from 39
> cents per share to $1.18 on 60 times normal volume. In Stockholm, of
> course, investors knew better, and the fact that The Scandinavia Company
> had now announced its majority ownership of Mirror Image -- which
> everyone knew was coming all along -- was a complete non-event: Mirror
> Image's stock price, which by now had crashed to 4 cents per share,
> didn't budge a penny.
> Between April 1 and September 29 -- a period during which
> The Scandinavia Company issued 18 more press releases in addition to
> announcing that it was selling its hotel in the Canary Islands and
> changing its name to Xcelera.com -- the company's stock rose 375 percent
> more, to $5.61 per share.
> By that time, the press releases and rising stock price had
> caught the eye of someone with a real megaphone -- a financial writer at
> Microsoft Corp.'s MoneyCentral Web site -- who gathered what little
> information he could about the company, pronounced it "nothing if not an
> enigma," then summarized its business as helping Internet companies
> "conserve bandwidth and boost speed," and pronounced its recent stock
> performance "just a start if its smart Web infrastructure investments
> keep up."
> In the following two trading days, The Scandinavia Company's
> stock spurted another 50 percent, as momentum traders began chasing
> after the rising price of the shares now that the company's story had
> moved beyond mere press release distribution. Meanwhile, the press
> releases kept coming (nine more through the month of October) as the
> stock price nearly doubled again -- helped along toward month's end by an
> October 28 recommendation on Microsoft's MoneyCentral site that
> proclaimed the company a "phenomenon" and predicted yet more gains for
> its stock.
> Though the company issued seven more press releases during
> December, they were actually no longer necessary. The stock price of The
> Scandinavia Company (now known as Xcelera.com) had caught an unstoppable
> updraft and was soaring on its own. By the first week of January, when
> MoneyCentral published yet another ultra-upbeat story on the stock, it
> had tripled yet again and stood at $45 per share.
> A "CHANCE TO CHANGE THE WORLD"
> Between the publication of the MoneyCentral Web site story on
> Jan. 7 and the middle of February, Xcelera.com's stock price soared
> another 42 percent, to $64 per share -- at which point came the biggest
> and most dramatic surge of all. This occurred when George Gilder, the
> widely followed technology writer and commentator, endorsed the company
> in one of his newsletters, saying that its ownership of Mirror Image
> gave Xcelera.com a "chance to change the world." The very instant the
> story was published, on Feb. 17, Xcelera's stock rocketed skyward all
> over again, closing at $95 per share, for a 50 percent gain on the day,
> on 12 times normal volume. In the four weeks that followed, the shares
> performed yet another tripling feat, reaching $223 on March 23 when they
> topped out on an announcement that Exodus Communications, the Web
> hosting outfit, had made a 15 percent equity investment in Mirror Image
> and agreed to offer its service to Exodus customers.
> In short, from April 1, 1999, to March 23, 2000 -- a period just
> shy of one year -- this Cayman Islands-based company that almost no one
> had previously heard of, with audited financials a year-and-a-half out
> of date, had risen by 74,333 percent in value, to $223 per share,
> putting an $11.7 billion market valuation on the company on the basis of
> nothing but a deluge of self-serving press releases and the enthusiastic
> writings of two people on the Web.
> Now granted, it is entirely possible that Mirror Image really
> will "change the world" -- or at least the digital part of it, in Mr.
> Gilder's somewhat overwrought expression. It is also possible that, when
> the Hewlett-Packard Co. agreed back in December to invest $32 million in
> Xcelera (an amount that has now been increased to $52 million), the
> Hewlett-Packard people saw in the Mirror Image technology whatever it
> was that Mr. Gilder claims to have seen. Certainly investors who noticed
> the press release announcing the Hewlett-Packard deal took it as
> evidence of Hewlett-Packard's confidence in the company.
> On the other hand, it is also possible that all Hewlett-Packard
> really wanted to do was sell some equipment the easy way -- by lending
> the customer the money needed to buy it. In the deal, Xcelera is
> borrowing some $50 million from Hewlett-Packard, by way of a convertible
> debt offering, then handing some 80 percent of the proceeds right back
> to Hewlett-Packard in return for 32 servers and associated software and
> support. This means, in effect, that Hewlett-Packard is creating roughly
> $40 million of revenue for itself by simply lending Xcelera.com the
> money to buy its products -- betting in the process that Xcelera's rising
> stock price will more than offset the risk of lending to the company in
> the first place.
> XCELERA TAKES A HIT
> That bet may have looked smart when Xcelera's stock price was
> tripling every month, but it suddenly doesn't seem so clever. Since
> March 22, the collapse in Internet stocks has flattened not just Xcelera
> but the entire dot-com sector, with Xcelera having given back, in four
> weeks, roughly 66 percent of the gains it racked up throughout the whole
> of the previous year. Bad news for everyday shareholders in Xcelera?
> Obviously. And for Hewlett-Packard? Maybe.
> But want to guess who's not gotten hurt in the rout? Try Mr. Vik
> and his chums. SEC records show that since late February, the
> Vik-controlled V.B.I. operation has quietly filed to sell an incredible
> $326 million worth of Xcelera.com stock, which it held via an address in
> the Turks & Caicos Islands in the British West Indies. In so doing, it
> would appear, we may conclude, that Mr. Vik and his chums have answered
> once and for all -- if anyone needed to ask in the first place -- whether
> the folks behind this tax-haven operation really thought the shares they
> were holding were worth more than the money they could get by selling
> them before their own personal 74,000 percent bubble went pffft.
Right now, betting on Napster seems like betting on casual Friday, or the tattoo - sure, it's more popular than it used to be, but where's the money in it? -- Rob Walker, May 2, 2000
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