Divine Interventures -- The Internet Zaibatsu

Date view Thread view Subject view Author view

From: I'm not a real doofus, but I play one at a national laboratory (baisley@fnal.gov)
Date: Thu Jul 13 2000 - 07:01:21 PDT

Zaibatsu is a Japanese word which apparently means 'a toilet for piles of money
too large to burn.' I suppose the fact that the IPO only lost 2.5% on the
first day must be a moral victory. Greising's article from yesterday's Trib
makes for entertaining reading. (Watch out Stephen King -- there's a new
prospectus writer in town.)


The following article was selected from the Internet Edition
of the Chicago Tribune. To visit the site, point your browser
to http://chicagotribune.com/.

Article URL: http://www.chicagotribune.com/business/columnists/greising/

---Forwarded article----------------

David Greising

  Divine Interventures plans to go ahead with its stock sale
Wednesday. And founder Flip Filipowski apparently expects investors to
buy the stuff.

Hasn't he read his own prospectus?

    The prospectus is the document companies must publish before
selling stock to the public. Investment bankers call a company's first
prospectus its "red herring."

The prospectus for Divine's offering Wednesday should be called a "red
flag." Warning: dangerous IPO ahead.

Page after page, the Divine document is filled with cushy insider
deals, an unpromising financial picture and an unwieldy corporate
structure. It's got more hocus-pocus and scary stories than the new
Harry Potter book.

The chief hair-raiser is Filipowski's tolerance for conflicts of
interest. He apparently believes he can manage them simply by knowing
where they are.

If only that were true.

Consider the curious case of CMGI. Here's a company that is beating
Divine in its core business: becoming an incubator for Internet
start-ups. It's Divine's biggest competitor.

But Filipowski already has sold CMGI a 5 percent stake in Divine--at a
$3-a-share discount below the price public investors will pay.
Filipowski also has placed one CMGI director on Divine's board,
alongside the chief executives of two CMGI-controlled companies.

"As a result," the Divine prospectus states, "CMGI may have the
opportunity to influence our business in a way that may benefit CMGI."
Translation: This fox we've invited into our chicken coop--he may just

Divine also has promised to buy products and services from companies
CMGI controls. "These transactions may be on terms less favorable than
could be obtained with unaffiliated third parties," Divine warns.

That's just the start of Divine's conflict hit parade.

Divine admits that it is inviting conflict by managing the City of
Chicago's Skyscraper Ventures fund, which targets Internet start-ups.
Just like Divine.

There's also the curious presence of board member Robert Bernard. He's
chief executive of MarchFirst, a Chicago-based high-tech firm that
just formed a venture capital unit to invest in Internet
businesses--just like Divine. And MarchFirst advises brick-and-mortar
companies on starting their own Internet spin-offs--to compete with

Welcome to the board room, Bob. Please check your conflicts at the

But Bernard and the CMGI directors won't feel lonely. The Divine red
herring lists 17 directors whose primary businesses compete directly
with Divine.

The best hope is that those 17 will get lost in Divine's
bigger-than-a-breadbox board. Filipowski has invited 44 people onto
Divine's board. The number could climb to 59--or more than one
director per Divine company.

Why is that a problem? Ask Divine. "This large number . . . could make
it difficult for us to make significant decisions in a rapid or timely
manner and otherwise conduct business efficiently," the prospectus

You would think Divine could have done without Michael Jordan. But
Filipowski lent the world's richest ex-athlete $1 million so he could
cash in on the 166,666 below-market-price stock options Filipowski
used to lure him.

Also, what can Oprah Winfrey business partner Jeffrey Jacobs do to
help? Get Flip booked on Oprah's show, maybe?

Divine apparently feels no commitment to scour the planet for the best
deal on anything. Among other deals, it will buy Compaq computers,
Level 3 brand bandwidth services and Microsoft software because those
companies are Divine investors.

Microsoft got a great deal. In exchange for $70 million, Divine will
buy and promote Microsoft products, open a 60-person Seattle office
and begin funding Internet start-ups in the rainy city.

So much for Divine's commitment to Chicago.

But that Silicon Prairie thing was pretty much out the window already.
Turns out 12 of Divine's 52 companies are headquartered outside of the
Chicago area.

Bon voyage, Divine. If your prospectus gives any clues, your IPO
should prove absolutely Titanic.


Contact Dgreising@tribune.com.

Date view Thread view Subject view Author view

This archive was generated by hypermail 2b29 : Thu Jul 13 2000 - 07:05:15 PDT