Concentric: Acquirers Circling? (Fool Plate Special) November 11, 1999

An Investment Opinion

Concentric: Acquirers Circling?

By Dave Marino-Nachison (TMF Braden)
November 11, 1999

The market generally boos companies that adopt shareholder rights plans, which give stockholders the opportunity to boost their holdings in the event that a third party acquires a sizable stake in a company, perhaps threatening a hostile takeover. Investors, visions of fat premiums dancing in their heads, like the idea that their companies might be bought out.

Of course, a shareholder rights plan doesn't preclude that -- it just precludes it happening without the go-ahead of a company's management and board. Depending on your assessment of your company's prospects, management and board, that could be either good or bad.

Internet protocol and web-hosting services provider Concentric Network Corp. (Nasdaq: CNCX), which targets small- and medium-sized businesses, last night announced a plan of its own and the shares moved slightly downward this morning. Interestingly, the company's press release didn't contain the boilerplate language often included in such statements that there's nothing going on at the moment and the "poison pill" plan is "just in case" -- but a company spokesman later today said not to read too much into that.

Company policy is not to comment on rumors, Concentric's Michael Anthofer told the Fool today. "There obviously have been rumors out there," he said, but in this case the rights plan "standard operating procedure."

But Concentric has still done much this year to attract the attention of both potential acquirers and investors. Even with the shares well off their late-spring highs, 1999 has been a solid year for the company's stock.

And the company itself has shown signs of solid growth: through the first three quarters of the year revenues were up more than 75% year-over-year while operating and net losses have narrowed. Concentric has now posted four straight quarters of gross profits.

Meanwhile, Concentric has been adding name-brand distribution partners through arrangements with companies like 3Com (Nasdaq: COMS), Insight Enterprises (Nasdaq: NSIT), and Staples (Nasdaq: SPLS), making strategic investments and broadening its customer reach through acquisition. (For the company's third-quarter recap, click here.)

Notably, last month's close of New Jersey-based web-hosting provider 9 Net Avenue for just over $60 million in cash, stock, and assumed debt puts Concentric firmly among the leaders in the web-hosting space. Further, the recently announced agreement to buy the U.K.'s Internet Technology Group is expected to herald a ramped-up acquisition pace in Europe, said CEO Henry Nothhaft earlier this month citing "reasonable pricing" even in the continent's larger markets.

All told, Concentric appears to be poised for future growth whether or not it's done under the auspices of its own logo or an acquirer's -- and investors looking for opportunities in the web-hosting space would do well to put this company at or near the top of their research list.

Related Links:
Concentric Web Site
Concentric Message Board
StockTalk, 10/11/99, Verio