BEFORE THE "E" |
AFTER THE "E" |
Technology mishmash: The company runs five e-mail systems and 20 versions of accounting, planning and inventory software. Country operations use different computer codes for the same products so it’s hard sharing supplies and data. |
Standardized software: Nestlé is moving to one software package. The Web-linked program creates a single set of product codes, allowing buyers in one country short on, say, corn powder to get supplies from other Nestlé divisions |
Bad communication: Most employees have no access to production and sales figures from countries other than their own because they’re not linked. A planner in France can’t see data about KitKat bars being made for him in a German plant-making it tough to adjust his order. |
Centralized data: Nestlé is building up to a half-dozen data centers so employees can get quick access to info via the Net. For the first time, Nestlé will know how much it is buying from suppliers with far-flung operations. That will let it negotiate better contracts, centralize production, and buy more across borders. |
DATA: NESTL'E |
Divine overhaul
Some of the cash-rich, market-cap-poor companies are taking the opposite
approach. Realizing their original business plans were failures, they’ve done
180-degree turns and overhauled their strategies. Divine interVentures, for
example, went public as an incubator and started up more than 50 companies. In
February, with its stock market value lower than the $190 million in cash on its
balance sheet, Divine announced plans to remake itself into a software company–CEO
Andrew Filipowski’s area of expertise. It even changed its name to Divine. The
moves have helped a little: The stock of the Chicago outfit has climbed from its
low of $1 a share to $1.69, although that’s still well off the $9 a share at
which the company went public last July.
In December, the California company, Ventro, closed two of its online
business-to-business marketplaces–the Chemdex market that allowed companies to
buy and sell chemicals on the Net and the Promedix market for medical supplies.
Ventro then said it would change its focus to helping other companies build
marketplace sites. So far, they haven’t convinced investors that its new plan
is any more viable than its last one. Its market capitalization is still only
$50 million, even though it has a treasure trove of $235 million on its balance
sheet.
Free Cash? It's |
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Some Internet companies may look like bargains because the entire company is valued at less than the cash it has on its balance sheet. But don’t expect a rash of takeovers. Many companies are burning cash so fast that the excess probably won’t last long. Here are a few examples: |
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COMPANY |
MARKET
CAPITALIZATION
CASH
50.4
235.1
184.7
101.5
217.4
115.9
Internet
124
230
106
57
159.1
102.1
44.9
129.2
84.3
Group
132.5
211.8
79.3
80.4
129.8
49.4
Sports
7.9
50
42.1
40.7
81.9
41.2
38.1
48.9
10.8
figures are in $ millions.)
Data: Standard & Poor’s
Then there are those companies that are sticking to their guns. They simply
think the stock market is unfairly punishing them and, if they perform well,
their stocks will recover. Consider Neupert at Drugstore.com. "We’ve made
a lot of changes in the last six months–laid off a substantial part of the
workforce, dramatically reduced marketing plans, and reconstructed the business
model to break even," he says. That’s why he’s confident his business
will survive, even though its stock has dropped from $67.60 in 1999 to $1.31.
Autobytel is staying the course, too. The company, with $82 million in cash
and a $41 million market valuation, expects investors will become bullish once
it hits operating profitability in the third quarter. "We are well enough
established that we aren’t taking down marketing costs, nor are we
anticipating any large-scale layoffs," says CEO Mark Lorimer. "After
all, we’re going to post profits in a few (months)."
Despite the risks, cash can be a powerful lure for potential acquirers. If a
purchase can be completed quickly, the leftover cash can help fund the
operations of the surviving company. The women’s site iVillage acquired
Women.com Networks for stock in February, partly to get its hands on its
one-time rival’s $30 million in cash. The two sites combined some operations
to reduce expenses and now should have plenty of money to make it to the third
quarter when the business is expected to begin generating cash. "The deal
that we cut with Women.com makes sure that we have enough dollars for a rainy
day," says iVillage CEO Douglas McCormick.
There may yet be a handful of deals like McCormick’s in the wings. But it’s
a treacherous market these days and potential acquirers will have to weigh the
risks carefully–before moving licketysplit. The free cash is disappearing
fast.
Pallavi Gogoi–BusinessWeek