Did News Corp. Steal MySpace?

The accusations are sharper and darker than any gossipy entry on the MySpace pages.

According to my founder Brad Greenspan, last summer's acquisition of MySpace parent Intermix by News Corp. (NYSE: NWS  ) was an orchestrated sham that defrauded Intermix.

On his site, Greenspan alleges that Intermix CEO Richard Rosenblatt rushed to cut a deal with News Corp. in order to accelerate stock options, cover for the shortcomings of his pet project, and shake the stink of the New York Attorney General that had tagged Intermix as on online nuisance for facilitating the spread of scummy adware.

The report is a lengthy read. Some of it is provocative, and some of it is absurd. At the very least, you can walk away with rich lessons in how an Internet phenomenon was born and the extent to which corporate executives could use a spell-checker before firing off spicy emails. If you want a little local color on how Viacom (NYSE: VIA  ) lost out on MySpace, that's there, too.

The problem with Greenspan's conspiracy theory is that he clings to the notion that investors in the summer of 2005 who agreed to the deal were unaware that MySpace could one day become a $20 billion company. It's a claim that Greenspan feels so passionate about that he has taken to lead the charge in suing the company and egging on the SEC to take a closer look.

I'm not a legal eagle. Whether Greenspan has a valid argument or not isn't for me to decide. However, just because Rosenblatt fires off an email referring to MySpace as a potential $20 billion company one day does NOT make it a $20 billion company.

For starters, News Corp. has been running the show for more than a year now, and MySpace is far more successful now than when it was under Intermix. The combined $580 million price for Intermix and 100% ownership of MySpace was a reasonable premium to what the market figured the company was worth at the time. I was vocal in my support of MySpace as a great addition to News Corp. when the deal was first announced, but some still felt it was overpaying.

According to Greenspan's report, MySpace was generating less than $2.5 million in monthly revenue. Yes, MySpace was growing extremely quickly, but we can also point to earlier social networking upstarts like Friendster and that were growing as fast as weeds at one point before coming undone.

When you sell a company, there's always the risk of selling too early. PayPal is a good example. In retrospect, eBay (Nasdaq: EBAY  ) walked away with a huge bargain there. On the flip side, you have companies that bought too late. Don't you think that Yahoo! (Nasdaq: YHOO  ) would have liked to reverse its purchase of or GeoCities? That's how it goes. We can't evaluate a deal retroactively and slap on a new price. If MySpace fades in popularity, can News Corp. go after Intermix investors for a refund? Of course not.

This doesn't underscore some of Greenspan's most damaging allegations. If half of the corporate shenanigans that he cites are true, fight on. I just think that one loses credibility by going overboard with valuation metrics.

As in life on MySpace, if you want to add a whole lot of friends, you have to be reasonable.

For on the MySpace saga, check out:

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Longtime Fool contributor Rick Munarriz knows that you can't ignore sleeping giants, much less the ones that are wide awake like YouTube and MySpace. He does not own shares in any of the companies in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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