March 16, 1999

To: Dr. John Schermerhorn, Jr.

From: Deland D. Basora

Re: Extra Credit 

Dr. John R. Schermerhorn, Jr. assigned his Management 202 class an optional analysis paper to evaluate two articles in The New York Times. These articles relate to current strategies being used by corporations in today’s business world. The two articles I chose relate to DuPont and Vulcan Ventures Inc. I will analyze each article to document the changes each organization is planning to make and why. I will observe and document if I believe this is a good or bad move on the part of each company for the future.

This article written by Claudia H. Deutsch for the March 11, 1999 edition of the New York Times focuses on DuPont’s latest move to change its organization. DuPont is looking to separate its chemical business, which is rather large in size, from its pharmaceutical and agriculture chemicals and life sciences products. It stated that Dupont is not going to use this as a spin off company but rather issue new stock so performance could be better rated and tracked. This part of DuPont accounted for $4.3 billion of Dupont’s $24.8 billion in total sales last year. DuPont is also looking to make an alliance in this sector but hasn’t released any information regarding this topic to date.

This new type of stock, tracking stock, is very different from common stock, offering the investor the opportunity to bet on the performance of the stock but not take ownership of the company. This opens up two balance sheets for DuPont now so they can better chart the growth of its giant chemical business. The chemical sector benefits in that it receives the name and credit of a prestigious organization to build and grow on while stockholders have a different view to put on the new deal. The market for life science companies is growing and stockholders are looking to invest but they are wondering if they are really investing in a life science organization or if they are investing in an old bureaucracy, DuPont. Also several other companies have tried this to mixed results. They are planing to release this stock as a dividend after conferring with stockholders later this year and gaining their approval. DuPont gained a nice margin in the stock market after the announcement pulling in an extra $3.8125 on the day of the announcement.

The split of the life sciences and the chemical organization will allow DuPont to have an organization solely focused on a market that is growing tremendously. Also, DuPont is looking for a merger partner such as the Monsanto Company. Using this method, the tracking stock method, instead of completely separating and reengineering itself, makes it much easier for DuPont to use their solid equity and credit.

This article written for the Tuesday, March 16, 1999 edition of The New York Times relates to Vulcan Ventures Inc., the seventh largest cable company in the United States, purchasing over $160 million of Go2Net’s preferred stock. This would represent a 26% share in Go2Net after they purchase a second installment of the stock of $135 million after Go2Net’s stockholders' approve. The offer made by Vulcan Ventures Inc., which is run by Microsoft’s Paul Allen, is worth about $750 million. Go2Net’s share shot up an astounding $26.375 after the deal had been announced. Vulcan Ventures also is agreed to by 1.4 million common stock shares at $90 a share from directors and executives, while an additional 3.6 million from public shareholders at a $3 premium of $90. The stock closed at $87 on Friday. If the deal goes through Vulcan will have a 54% ownership in Go2Net.

Vulcan Ventures Inc. plans to make the Internet search directory a new source of interactive content for its established cable companies such as Marcus Cable Company and Charter Communications. This will offer these two organizations an opportunity to offer high-speed Internet access. Go2Mnet has grown at a nice pace. They offer Internet games and an Internet investing site called Silicon Investor. Go2Net makes about one acquisition a quarter. The deal resembles the deal between At Home and Excite, but Go2Net is much smaller than Excite.

Vulcan Ventures Inc. is making a great bet in that it is hoping people will want interactive action from their televisions instead of just their PCs. Vulcan offered Go2Net cash instead of a stock sale because they believe putting real money into Go2Net will make it worth more and increase its value. This will help Go2Net keep pace with huge Internet names such as Yahoo and Excite.

Vulcan Ventures Inc. plans to make a move to get an edge in the future market of interactive television sets. Vulcan is heavy in its belief that people will want to use their cable lines and their televisions to interact on the Internet. I believe this is a great strategy in that many individuals can’t afford to buy a quality personal computer. If people already have a television set, which most do they can have the opportunity through cable to interact on the hottest type of communications out there, the Internet. This is vital to children who live in poverty or just can’t convince their parents that a PC is a good investment in their future. Also they are not just acquiring a company that offers Internet capabilities they are also buying an organization that has had a nice amount of success in the on-line investment market and with Internet games. I also like the idea of putting real money into the company so that it can keep pace with the large players in the industry, Yahoo and Excite. They are competitively gaining an advantage over other companies looking into this great investment opportunity in that they are investing a lot of cash and money to develop their organization now instead of waiting for the technology to become popular. I believe, since I am a futuristic individual and believe investing in technology is the ticket to success at this time so I think that Vulcan Ventures Inc. is making a better strategic move than Dupont. This opinion is solely based on the analysis of the article in The New York Times and no other business sources.

Dupont plans to make an impressive entrance into the life sciences market. They plan to do this using different organizations with the same name. Dupont is selling what is called tracking or targeted stock to increase investment in its life sciences department. Dupont, information not included in this article, has also recently acquired the largest supplier of farm seed in the United States, Pioneer Hi-Bred, to help the life sciences company make a stronghold in the market. DuPont is investing a tremendous move by solely placing the life sciences market by itself. The life sciences market, which already makes up for $4.3 billion DuPont’s sales will become even more efficient and powerful when it has more of a direct focus on it. DuPont plans to gain a much larger market share in the fast growing market of life sciences. This market is growing at a large rate, about 30% a year, and DuPont doesn’t want to miss out on that. Though I believe in this strategy, I believe the Vulcan Ventures Inc. move is a better move in that many market analysts report that the target market stock idea is quite shaky and DuPont is investing a rather large sum of money into it.

1. Deutsch, Claudia. (1999, March 11.) "Latest DuPont Formula Turns One Company Into Two Stocks." The New York Times.

2. Vulcan Ventures is Buying a Major Stake in Go2Net. (1999, March 16.) The New York Times.