MySpace CoFounder Says Purchase Was A Scam

Jonathan writes "Brad Greenspan says he's the real founder of MySpace, not Tom, and the sale of MySpace to News Corp. was a criminal act. In a nine-chapter report, he describes how this was accomplished by hiding the value of the site from Intermix Media's shareholders." From the article: "How was News Corp able to turn $327 million into $20 billion or more of value within a year? The Myspace/Intermix transaction was so low compared to other internet transactions that it is raising eyebrows by analysts and media everywhere. Everyone seems to be asking how News Corp. got such a good deal. It seems too good to be true! After signing the transaction to buy Myspace & Intermix (but prior to the closing), News Corp. itself even showed how strangely little it had paid for Myspace by immediately paying $3.99 per monthly page view for slow growing comparable IGN. News Corp. paid only .03 cents per monthly page view for the hyper fast growing Myspace. Therefore, we can conclude that the fair value of Myspace was 100x or more what News Corp. paid! "

Boo hoo

[LiquidCoooled]

Stop whining you miserable bastard, you made millions of dollars.

I once sold a computer for peanuts and saw its value rocket the day afterwards.
Should I consider myself a victim?

News corp got ripped off...

[Monkelectric]

Myspace will ultimately be worth nothing. Myspace is already past the height of its popularity, its just coasting on momentum which will run out eventually.

Re:Sounds like sour grapes

[monkeydo]

The company being sold was a corporation, so most likely, only a majority of the board of directors (and possibly the shareholders) had to agree to the sale. Greenspan was a minority shareholder, and apparantly was opposed to the sale. He can sue on the basis that the sale was improper and deprived him as a minority shareholder of some rights. Since there was apparantly a higher per-share offer made, he can argue that the board breached its duty to the shareholders by not taking the higher offer. The board probably has a lot of leeway, and Greenspan will have a hard row to hoe, but there's certainly a possibility that he's right, especially if the board misled the shareholders.

Stupid

[Hillgiant]

1. IGN and MySpace are similar only in that they are both websites. Comparing their prices is next to meaningless.
2. Quite to the contrary, I believe that News Corp overpaid. MySpace represents the worst of the worst in the world of user generated content. News Corp would have been better served waiting for a more competent successor.

Re:News corp got ripped off...

[Anonymous Coward]

"Myspace will ultimately be worth nothing."

The computer I'm typing on will ultimately be worth nothing; however, if while I have it, I am able to use it to generate more money than I paid for it, I win.

Re:Boo hoo

[Kelson]

I once sold a computer for peanuts and saw its value rocket the day afterwards. Should I consider myself a victim?

Similar story: A couple of years ago I upgraded the motherboard, CPU and RAM on my main PC. I then shifted the old mobo/CPU/RAM to my spare "expendable" system. The hardware I took out of that system was old enough (the CPU was a K6-2), and wouldn't work with anything else I had, that I figured I'd just sell the lot on eBay rather than break it up any further.

Silly me, as I discovered during the auction that people were surprisingly interested in it... and that auctions for equivalent RAM were selling for quite a bit more. It seems that the type of RAM was getting hard to find, and therefore in higher demand, so people who took the effort to look at the item description figured they were getting a great deal. I probably could've made three times as much if I'd split the set apart and sold the RAM separately (and clearly labeled).

Was I a victim of eBay, or of the bidders? Nope, just a victim of my own lack of research.

Re:Sounds like sour grapes

[Anonymous Coward]

Brad did happen to make $47 million for his share in the company. Now granted, that's a lot less than the $470 million he apparently thinks he's owed.

Not bad for someone who was investigated by Elliot Spitzer for SEC violations :)

At the tender age of 30...

Re:News corp got ripped off...

[B11]

I think you're underestimating the momentum this monster has. I mean it really is the easiest way to "social network" right now. Even if something better comes along, it would have to be VERY appealing to slay the beast. I mean look at how long AOL overstayed their welcome.

Valuation of companies is an artform

[DocJohn]

It all comes down to the author suggesting people knew stuff about the future of Myspace that the shareholders didn't know. But with quotes like this from the report:

"I bet if you extrapolate the numbers into Calender 06 (using 4thQ of our FY05 as the main driver) and include 3-5mm in cost savings the ebitda is in the 40-50mm range. Can someone please take a look at that asap. We will be valued off of calender 06 numbers ."

"Deutsche assumed that by 2008, Myspace would generate $100 million in revenue for that year."

And the fact the company was purchased for $580mm (according the PC Magazine article), shows that the company's valuation/sales price was appropriate.

Standard fare for M&A is 3-4x current year's revenues for a company. You can't value a company based upon what it *might* do next year (because every company likes to be very optimistic about *next* year's revenues!). So if Myspace was set to do somewhere between $60-100mm in 2006, then they got somewhere between 5.8x to almost 10x their revenues. These are already extraordinary numbers.

To suggest they should've gotten 20x or 25x 2006 revenues is a number nobody would believe.

And the reason for a "quick" close? A deal isn't done until it's done. All parties usually like to close as quickly as possible on a deal because it means neither side will get cold feet. Of course both sides also allow time for due diligence, a part of which is valuation.

But valuation of companies is more "art" than it is a science. Outside of the 3-4x revenue rule, valuations can be all over the map (hi Google!).

Re:It could be worse for techies...

[TwilightSentry]

Or, imagine that for every computer that connected to your server, you needed another license! Oh, wait...

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Comment removed based on user account deletion

Re:News corp got ripped off...

[Lehk228]

there is one warrior that could slay it. and that is Google.

combine gmail, google calender and add in a social network function and they could be a serious player in the social network market. apply tagging to friends lists along with mail and allow tags to be used on calendar events, such as a "school" tag that could allow your classmates to see your school schedule, but keep it private from people not tagged as school, or allow only people with certain tags to comment on your profile, or require certain tags to have their comments approved while others are posted immediately.

google hasn't shown any interest in the social networking market, but they could kick some serious ass.