Monday, October 27, 2008

Corporate Raiders and E-Learning: Fending Off a Potential Threat

Corporate raiders not seen since the 1980s could re-emerge and prey upon e-learning providers. Companies whose stock prices have dropped precipitously, but which hold cash, contracts, patents, or other tangible resources that represent solid present values could be affected. It is time for the healthy companies to look within, and use this as a time to aggressively invest, diversify, and acquire assets. Avoid vulnerability. Ironically, the strategies that helped web-based learning companies survive during the dot.com collapse will almost assuredly lead to disaster in today's time, if stock prices stay too low, and companies take a "cash is king" approach. Some of the companies that have most successfully come to dominate the market could be the most vulnerable.

Podcast: http://www.beyondutopia.net/podcasts/raiders.mp3

Evidence that such things are happening already is starting to trickle forth, not from e-learning companies (not yet), but from Hollywood, where Carl Icahn acquired a significant block of Lionsgate stock when corporate executives had to sell due to margin calls. The acquisition put him at owning a 9.2% stake in the company. For those who are uncomfortable with vulture tactics, there may be some consolation in the fact that Lionsgate is not cash-rich, but it is a film-only company, and is not vertically integrated. It does not own its own distribution company. Some say that Lionsgate will be attractive to a company that owns distribution networks.

One can use the same model with e-learning content providers. They will be attractive candidates for companies that own distribution channels.

Characteristics of a Raider-Vulnerable Company

*Cash or cash equivalent reserves
*Contracts to provide services (military, government agencies, universities, corporations, solid not-for-profits)
*Low operating costs
*Low debt
*Lots of free-trading stock
*Ability to vertically integrate to increase sales / cash flow
*CEO or major shareholder margin call (or distress sale of position due to over-leveraged position, etc.) - destabilizes stock price, makes blocks available

Successful E-Learning Companies that Could be Targeted:

Learning Management Systems: (providers of solutions such as Blackboard, Desire2Learn, Angel, Moodle)

Databases and Content Management Systems: (Eedo, Sun Microsystems, Oracle)

Course Content Providers: ECollege-type companies, Skillsoft-type training content providers

Digital Assets / Data Repositories / Virtual Libraries: (EBSCO, LexisNexis, Gale, Proquest)

Infrastructure providers: (Akamai, etc)

Major Software Packages Used by Companies: (Adobe, Microsoft, Techsmith, WebEx, SourceForge, Trivantis)

Digital Content Vendors and Providers: (Apple, Amazon)

Publicly-traded Education Providers with Large Contracts with Government, etc. (Colleges and Technical Schools)

Final (rather morbid) note: First, the bears had a few snacks as people got caught in "bear traps." Now the jackals are running in packs, anticipating a feast ... a global feast...

In the words of Joe Biden, "Gird your loins!" http://www.slate.com/id/2202769/

Useful Websites:

What Is a Corporate Raider? http://www.wisegeek.com/what-is-a-corporate-raider.htm

The Hottest Investor in America: http://money.cnn.com/magazines/fortune/fortune_archive/2007/06/11/100060832/index.htm Article about Carl Icahn, who now portrays himself as a billionaire Robin Hood

A Raider at the Lionsgate? http://www.hollywoodreporter.com/hr/content_display/film/news/e3ib59b5b9afcb9854b1a82af30c0dabf64?pn=1 Article about Carl Icahn's acquisition of Lionsgate stock (result of distressed CEO sale ... margin call casualty?)

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