In 1997, a company called PointCast Network Inc. was the hottest
start-up in Silicon Valley. Its founder and CEO, Christopher
Hassett, was “the most famous guy on the Internet,” said Hassett’s
former attorney, Allen Morgan. Hassett was named CNET’s newsmaker
of the year—an honor previously bestowed on giants such as Bill
Gates of Microsoft and Larry Ellison of Oracle. The “push
technology” that PointCast pioneered was making headlines as well
as being featured on the cover of Wired
as “The Radical Future of the Media beyond the Web.”
All the attention around PointCast motivated one of the world’s
largest communications companies—Rupert Murdoch’s News
Corporation—to make them an offer of $450 million. Negotiations
were intense and lasted weeks. With media speculation that
PointCast—a company with almost no revenue—deserved to be valued at
$750 million, some people say Hassett started believing the hype
and, with the support of his board, asked for more money. “People
involved in the company thought they’d be the next Netscape. They
hung out for more,” Murdoch said. News Corporation instead lowered
its initial offer to $400 million but added incentive clauses that
brought the offer close to the original $450 million if PointCast
met its financial projections.
PointCast also rejected that offer, and News Corporation walked
away from the bargaining table. The timing couldn’t have been worse
for PointCast, as “push” technology became old news thanks to the
maturing of alternatives such as Yahoo! By the time PointCast
decided to go public in 1998, the company was valued at half of
News Corporation’s last offer. Worse, the process of filing an
initial public offering (IPO) requires the company to disclose all
potential dangers to investors. PointCast’s disclosures—such as
news that customers had left because of poor performance—scared off
so many investors that PointCast ultimately withdrew its IPO. By
that time Hassett had been forced out by the board, but the company
never fully recovered. In the end, PointCast was acquired in 1999
by Idealab for $7 million. In this case, stalled negotiations cost
the firm a steep price of $443 million.
Referring to the missed opportunity, an industry expert said,
“It may go down as one of the biggest mistakes in Internet
history.” According to Steve Lippin, writing in the Wall Street Journal, “Merger professionals point to
these euphemistically called ‘social issues’—ego and corporate
pride, that is—as among the most difficult aspects of negotiating
multibillion-dollar mergers these days. Although financial issues
can be vexing too, these social issues can be deal-breakers.”
In a similar and more recent situation in 2008, Yahoo! CEO Jerry
Yang was ousted by the board of directors following failed deals
with Microsoft and Google. Yang’s behavior during negotiations
indicated that he wasn’t interested in bargaining as much as
playing “hard to get.” He “kept saying we should get more money, we
should get more money, and [he was] not realizing how precarious
their position was,” says high-tech analyst Rob Enderle. In other
words, even deals that look great financially can fall apart if
participants fail to pay attention to organizational behavior
issues such as perception, groupthink, and power and influence.
Based on information from Arnoldy. B. (2008, November 19). Why
Yahoo’s Jerry Yang stepped down. Christian
Science Monitor. Retrieved January 20, 2009, from http://www.csmonitor.com/2008/1119/p02s01-usec.html;
Auletta, K. (1998, November 19). The last sure thing. New Yorker; Lipin, S. (1996, August 22). In many
merger deals, ego and pride play big roles in which way talks go.
Wall Street Journal, Eastern edition, p.
C1; PointCast fire sale. (1999, May 11). Wired. Retrieved November 14, 2008, from www.wired.com/techbiz/media/news/1999/05/19618.
Discussion Questions
Considering the amount of buzz surrounding Hassett’s new
technology and the impact previous, similar advancements have made,
was Hassett necessarily foolish for not taking a quick offer?
Is the PointCast situation a case of pride clouding someone’s
judgment or more accurately a representation of the rapidly
changing nature of computer-related business? In other words, if
Hassett’s advancement had been in an industry that is not known for
such rapid changes, would he have been considered foolish if he
hadn’t held out for more money?
This case focuses on how foolish Hassett was for not accepting
Rupert Murdoch’s first or second offer. However, think of the
buyout offer from the perspective of Rupert Murdoch. If the buyout
had gone through, News Corporation would likely have lost hundreds
of millions of dollars on the deal, and the company was effectively
spared massive losses by the merger falling through. What could
Murdoch have done differently to protect against such risky mergers
in the future?