Fool.com: SoftNet Aims at Asia (News) October 12, 1999

SoftNet Aims at Asia

By Dave Marino-Nachison (TMF Braden)
October 12, 1999

Shares of cable and satellite Internet service provider SoftNet Systems (Nasdaq: SOFN) rose approximately 13% today following news that Hong Kong's Pacific Century CyberWorks (PCCW) agreed to buy 5 million shares of SoftNet stock for $129 million.

The implied price per share, $25.80, probably isn't what accounted for today's move since that amounts to a measly premium of a quarter per stub.

Instead, it looks like the market is reacting to the opportunities that the deal appears to present for SoftNet. (Another clue might be the size of the deal; it's hardly a token investment as it represents about a 15% stake in SoftNet.)

The word that probably piqued investors' interest was "Asia," which turned up nine times in the companies' joint press release; Internet use is expected to skyrocket in the region over the next several years. The two are putting together a joint venture, to be known as Pacific Century SoftNet. The combined enterprise will market products and services -- including SoftNet's Intellicom satellite offerings -- to cable operators in 63 countries serving 110 million Asian cable households.

"The investment by PCCW and our joint venture represents a vehicle to rapidly enter a very large Asian market," said SoftNet Chairman and CEO Lawrence Brilliant. "Their reputation with Asian cable operators will allow us to rapidly deploy PCCW's converged Internet and video service.... The joint venture also increases our market to deliver Intellicom high-speed satellite Internet service."

SoftNet will help PCCW distribute its converged Internet and video services to its U.S. customer base which, after last month's deal to provide Internet services to Mediacom's cable households, numbers around 2.4 million homes.

"We believe SoftNet has significant expertise that will enable the rapid upgrade and deployment of two-way cable broadband systems throughout the Asian service area," said PCCW Chairman Richard Li. "We see our investment in SoftNet as a vehicle to form a strong relationship with a leading U.S. cable modem and satellite services company and to secure a 'beachhead' for launch of our converged Internet and video service in the U.S. market."

The degree to which U.S. investors will be able to profit from Asian Internet use is still a largely unknown quantity, so attaching too much significance to this deal in the short term probably isn't a great idea for investors.

On the other hand, investors might want to pay close attention to SoftNet as a potential buyout play if it continues to issue equity in large amounts for access to customers. (It gave Mediacom 3.5 million shares in exchange for the 10-year deal it signed with the cable television company.)

The more fractured a company's ownership, the better the chance that an outside acquirer would be able to win over stockholders in a takeover play. If SoftNet's plans start panning out, the company could attract interest from its larger competitors such as Excite@Home (Nasdaq: ATHM) and RoadRunner.

Then again, that could be the company's plan. Either way, there's opportunity here worth investigating.

Related Links:
SoftNet Web Page
SoftNet Message Board
Pacific Century Group Web Page
The Ferris Bueller Page

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