Xcelera Denouement

Remember Xcelera (AMEX: XLA  ) (Pink Sheets: XLACF)? It was one of those controversial comet companies that seemed to come out of nowhere in 1999 to make a few people, for a short period of time, filthy, stinking rich. It quickly descended from whence it came, evaporating hundreds of millions of shareholder speculations. This week, Cayman Islands-based Xcelera received its final blow -- the American Stock Exchange delisted the company.

Xcelera, which claims to be a "European company focused on founding, developing, operating and financing technology companies," was one of the big growth stories of 1999 and 2000. In the course of a few months, Xcelera stock rose from obscurity to become one of the momentum investors' favorite playthings, rocketing to an all-time high of $111 per share (split adjusted) in March 2000. Just eight months prior, in July 1999, it had been trading at less than $1 per share. In the process, the Norwegian-born Vik brothers, Alexander and Gustav, suddenly showed up among some of the richest people in the world -- in 2000 they showed up on Forbes' list of the world's richest people with a combined net worth of $2.9 billion. Xcelera at the time tipped the scales at more than $3.8 billion.

The trouble, of course, was that this was an Internet incubator that didn't seem to do very much. In that hullabaloo year of 2000, the total net income for Xcelera came it at a whopping $300,000. That's right, a price to sales ratio of 12,666. That Xcelera ever attracted this type of attention is baffling. Its predecessor was called The Scandinavia Company and owned real estate, mostly in the Canary Islands. The Vik brothers jettisoned the real estate, changed the name to Xcelera, and used the proceeds to invest in Internet companies.

Three things conspired to give Xcelera the outward patina of believability among those who dearly wanted to believe. First was its acquisition of Mirror Image, an Internet infrastructure company that to this day generates most of the company's revenues and competes -- badly -- with the likes of Akamai (Nasdaq: AKAM  ) . Xcelera claimed Yahoo! (Nasdaq: YHOO  ) and now-defunct Exodus as customers and partners and got a lift when Akamai held its IPO and suddenly was valued in the market at some $11 billion. You can see the "relative valuation" cogs start to spin. "If Akamai is worth $11 billion, then Mirror Image must be worth..." And since Xcelera had more where that came from, the crowd went wild. Throw on top of this a George Gilder recommendation in his newsletter, and some hot "strong buys" from Paine Webber and Morgan Stanley (NYSE: MWD  ) , and the horses were on the track.

The trouble is, as Akamai claimed (and earnings releases bore out), Mirror Images was more smoke and mirrors than a real competitor. But since Xcelera, as a foreign company, had much looser filing standards with the SEC, its real results were inscrutable. This is a good thing for a company claiming to do lots but actually doing very little.

Naturally, this turned out badly for Xcelera's true believers. But, can you believe it? It didn't turn out so badly for Alexander and Gustav Vik. As Christopher Byron painstakingly spelled out in an August 2001 New York Observer column, their holding company, VBI Corporation, sold more than $400 million of the company stock -- $283 on the way up, another $142 on the way down. And amazingly, Byron notes that two of the brokers doing most of the selling for VBI turned out to be the selfsame companies that strongly recommended Xcelera at the same time.

And now the company is relegated to the Pink Sheets. I'd say that this is sweet justice, yet, given that the central folks in this sham walked away with hundreds of millions of dollars, there is no such thing. No one left behind but the truly gullible.

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Bill Mann owns no shares of any company mentioned in this story.

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