Failed Eisa Bid Arrogant and Naive, Analysts Say

SYDNEY (06/02/2000) - Bad luck may have less to do with Eisa Ltd.'s failure to acquire ISP (Internet service provider) giant OzEmail Pty. Ltd. than bad planning.

While IT industry analyst Paul Budde has labelled Eisa's tactics in the lead-up to acquiring OzEmail as "arrogant", International Data Corp. (IDC) analyst Graham Penn forgives Eisa's "naivete" due to the overall innocence of the Internet economy.

Internet company Eisa was officially bounced from the OzEmail acquisition discussion table today when OzEmail parent, MCI Worldcom Inc.'s UUNet division released a statement announcing it no longer planned to go through with the sale of the 350,000-customer ISP due to Eisa's inadequate funding.

Eisa failed to provide proof that it had access to half the necessary funds to pay for the ISP, Australia's second-largest, before a mutually agreed deadline last month.

The deal fell into further strife earlier this week when media company John Fairfax Holdings Ltd.'s online division f2 announced it would no longer contribute a vital A$40 million (US$22.9 million) in funding to the deal.

Soon after, Eisa announced the resignation of two top executives, which saw company share prices immediately plummet below A$0.30 -- less than 10 percent of their value just two months ago.

"(Eisa CEO) Damien Brady was very confident that he always had money in his pocket. Perhaps inexperience led him to believe that he could pull it off," Budde said. "If he had done the deal straight away, he might have found himself in a much better position.

"I think it's a combination of inexperience, a bit of arrogance and the Nasdaq that brought him down," he said.

IDC analyst Graham Penn described Eisa's proposed business plan as simply "unrealistic".

Despite the impending array of services offered by the various players in the proposed deal -- which included f2, Disney, ANZ Bank and Mike Fitzpatrick Hastings Fund Management -- Penn said Eisa had never properly outlined how it expected to draw sufficient revenues to justify the acquisition.

Penn said the Eisa/OzEmail debacle was just one of many to come in the inevitable consolidation of the IT market.

"Unless you have very wide tentacles, you can't properly stand alone," he said, adding that both Eisa and its financially-estranged partners would learn a valuable lesson from the failed acquisition.

"They will have a better understanding of the upside, but also a better understanding of the downside," he said.

Meanwhile, research company www.consult's Ian Webster said it was likely UUNet would seek to find another buyer for OzEmail "sooner rather than later".

"I'm sure all parties are aware that it's not good for OzEmail to be left hanging . . . in terms of their retention rates and acquisition rates of their members. The sooner they resolve this, the better," he said.

"I think we'll see something fairly soon."

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