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BigTime
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PostPosted: Fri Jun 23, 2006 3:45 pm    Post subject: Vonage buyout: ain't gonna happen Reply with quote Back to top

A takeover simply is not going to happen. Here are 5 reasons why:

1. Cost Right now Vonage is trading at about $1000 per customer. Cable Co's can get those customers at a much cheaper price themselves, especially since they can run commercials on cable for free, are allowed to telemarket to their own customers (exception to the do not call list), and can run inserts in the bills they send out.

Tivo is a great example of this principle. Everyone bought that money-burning loser thinking that a Cable Co would buy it out. It never happened. They just set up their own versions of Tivo.

Tivo stock dropped 85%. A great warning to you longs: this was another company that captured the imagination of many consumers and was the first player to the market. And they got squashed like a bug by the Cable Companies.

2. Branding Customer service nightmares and the heavy news coverage of the botched IPO, the worst in at least three years, is not something these companies want to be associated with. They want to increase the value of their own brand, not buy someone else's damaged goods.

3. Location Cable Cos do not want customers outside of their territories. It increases their costs dramatically, and people expect Cable Cos to send someone out in person when something goes wrong. If Comcast currently has no customers in Iowa, why on earth would they want Vonage's (unprofitable) operation in that state?

4. Litigation You buy Vonage, you get all 15+ lawsuits that come with it.

Furthermore, any company already in the phone business would expose itself to antitrust actions by private parties and/or the federal government and/or state attorney generals.

5. Anti-takeover provisions in Vonage private placements Vonage disclosed in its prospectus, without going into any detail, that provisions of its pre-IPO private placements make a takeover unlikely.
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scerruti
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PostPosted: Fri Jun 23, 2006 4:19 pm    Post subject: Reply with quote Back to top

Cost

TiVo is probably not the best example to use here, no TiVo wasn't bought out, but they do have a major contract with Comcast so that people can choose a TiVo DVR instead of the Comcast DVR. In addition, TiVo is more of a takeover candidate having recently defended its DVR intellectual property.

I was curious about the current $/customer amount. I was going to take a stab at computing it. How did you come up with that figure?

Branding

I don't know that the image of Vonage that most people have matches the image that is portrayed on this board. Vonage spends way to much on advertising for me to believe that the vast heard of sheep that is the public are overly worried about customer service or failed IPO. But, that is just an opinion and I don't have any research to support it.

Location

Cable companies do not want customers outside their locations, but phone companies sure do. The issue with cable companies is the headache of POTS termination, something that is not as problematic for a voice company, though they would still have to work with CLECs in areas where they don't offer service. That is unless Verizon and AT&T worked out a deal to create a subsidiary to manage Vonage and brand it locally in their own regions and keep the Vonage brand internationally.

Litigation

I have seen deals M&A deals worked out specifically to avoid litigation issues. An acquisition by Verizon would make the patent issues disappear.

Anti-takeover

Since Vonage was shopping for a buyer before the IPO I would assume that any anti-takeover provisions are simply to ensure that top management and founding investors get a sweet deal. I saw that in dot com M&A as well.

I am not going to argue that Vonage is a takeover candidate, I wouldn't dismiss it as easily as you did though. Who would have thought that eBay would by *you*know*who* for $2.6 billion?

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BigTime
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Joined: Jun 15, 2006
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PostPosted: Fri Jun 23, 2006 6:39 pm    Post subject: Reply with quote Back to top

On cost per customer, we actually don't know, because in a rather stunning lack of transparacy, Vonage doesn't disclose the number of customers it has, just the number of "subcriber lines." A lot of the those lines are second lines offered on a free trial basis, but we really don't know.

Aside from that issue, it is not hard to calculate. They have a market cap of 1.4 billion, and 1.4 million "subscriber lines."

Quote:
I have seen deals M&A deals worked out specifically to avoid litigation issues. An acquisition by Verizon would make the patent issues disappear.


There is no deal that will do away with the class actions for the botched IPO's at all, and there are two seperate patent infringement cases, and a takeover will remove at most one of them.

Verizon does not have the money anyway as it is barely able to digest other recent aquisitions.

Quote:
Since Vonage was shopping for a buyer before the IPO I would assume that any anti-takeover provisions are simply to ensure that top management and founding investors get a sweet deal. I saw that in dot com M&A as well.


That is what I would assume too. If we are right, that just means taking over VG would be even more expensive than the 1.4 billion, which is its market cap.

As for Skype, it has a over 100 million users to vonage's 1.4, and completely dominates its market. Vonage is the largest, but there is no network effect to be the biggest Voip, as there is with Skype's internet only phones.

So Skype was valued at about $25 per user, Vonage at $1000.

Anyway you don't seem to disagree too much with my conclusion, just a few marginal quibbles with my evidence.

TIVO

Well maybe they do have a deal with Comcast, but the bottom line for shareholders is that after six years the company is still losing money, and the stock is down 85%.

Vonage is only down about 47% as of now!
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Edge
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Joined: Jun 17, 2006
Posts: 94

PostPosted: Mon Jun 26, 2006 8:58 am    Post subject: Reply with quote Back to top

They're are so many inaccuracies in what Big Time states that I'm not even going to try and correct him. Clearly he is trying to talk down the stock and is trying his best to sound negative.

Skype was bought out by Ebay at a pricing very similar to Vonage's pricing per customer. I'm sure the naked short sellers would like to short Skype, but it has no publicly traded stock.
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BigTime
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PostPosted: Mon Jun 26, 2006 4:33 pm    Post subject: Reply with quote Back to top

Quote:
Skype was bought out by Ebay at a pricing very similar to Vonage's pricing per customer. I'm sure the naked short sellers would like to short Skype, but it has no publicly traded stock.


No offense, but this posts shows a massive level of ignorance. Skype was bought for about 2.6 billion. It has at least 100 million users. That is about $25 each.

Vonage has about 1.4 million customers. It is worth 1.4 billion. That comes to $1000 each.

You also don't seem to have any idea what a naked short sale is, other than a vague idea that it is sinister. In fact it is perfectly legal under most circumstances, the person who shorts a stock has no idea if his short is naked or not.

You do not help your cause by making saying that there are "many inaccuracies" in my post, and then not indentifying any, while at the same time saying $25 is "very similar" to $1000.
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Edge
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Posts: 94

PostPosted: Mon Jun 26, 2006 6:20 pm    Post subject: Reply with quote Back to top

Vonage's pricing was similar to Skype with respect to revenues.

You seem to have very little knowledge of Skype's business. Besides the fact that most of their customers are international, most of their customers are not paying Skype for telephone service on a monthly basis. Their revenues are much less certain.

Ebay can afford to wait for Skype's business to develop. But they still paid quite a bit for the company.

I think that is a testament to how much Voip will grow in the future.
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BigTime
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PostPosted: Sat Jul 08, 2006 11:15 am    Post subject: Reply with quote Back to top

Skype has a huge customer base that is only beginning to be tapped. Vonage has a small base that is already fully tapped, or nearly so.

I am not defending the price of Skype though. You also forget that most analysts thought eBay greatly overpaid for Skype, and that is one of the reasons that right now eBay stock just hit a multi-year low.

My point is even though 2+ billion was way too much to pay for Skype, 1.3 billion is even more absurd for Vonage, an inferior company is so many ways.
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Edge
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PostPosted: Mon Jul 10, 2006 8:18 am    Post subject: Reply with quote Back to top

Time Warner is giving away AOL services to anybody that has broadband.

Interesting that Time Warner will accept zero revenue in an attempt to get broadband customers.

Who knows what the world will look like in 5 years. But many companies are betting that broadband customers are worth acquiring. Vonage may be in an enviable position.
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BigTime
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PostPosted: Mon Jul 10, 2006 11:21 am    Post subject: Reply with quote Back to top

How does Vonage have "broadband customers?" Because they sell a service to such people? Then I guess Clorox has millions of broadband customers too because those people buy bleach too.

In fact it sells a single value-added service, at a large loss, to a small number of broadband customers, all of whom purchase their BB service from companies that could undercut Vonage whenever they want.
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Edge
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PostPosted: Tue Jul 11, 2006 12:37 am    Post subject: Reply with quote Back to top

All of Vonage's customers have broadband. They have also trusted Vonage with their phone service and in most cases have given Vonage the ability to charge them for telephone charges automatically.

That is clearly different from your Clorox analogy.

Few companies have access to a national list of broadband customers. This is what AOL is trying to get. They are willing to give away their service for free to get such a database.
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