Now that billion-dollar price tags are being bandied about for sites like YouTube and Facebook, a lot of people would say that News Corp. got a pretty good price on MySpace when it acquired the social networking site last year for $580 million. Just its deal with Google makes up for much of the site's difficulties in monetizing its base. From the very beginning, one of Intermix's (the parent company of MySpace) founders, Brad Greenspan, insisted that MySpace sold out for too little, and that the deal defrauded shareholders. Greenspan has been quiet for some time, but he's now back with the release of a lengthy report that purports to detail the alleged fraud, arguing the company should have been valued at $20 billion at the time. And he's hoping that when everyone sees his side of the story, MySpace will be unwound from News Corp., and once again be an independent company. Notwithstanding the implausibility of undoing a merger, there are some major problems with his argument right off the bat. For one thing, Intermix was a public company, and at the time the market was valuing the company below what News Corp paid. You don't find many instances when the market misjudges the present value of the company by such a staggering factor ($580 million vs. $20 billion). Even if the public markets got it way wrong, his argument presupposes that insiders knew the real value was closer to $20 billion. This argument might sound alright in retrospect -- particularly since Wall St. analysts have come close to corroborating this number -- but as they say, hindsight is 20/20. The heads of the company saw what had recently happened to Friendster, how quickly it fell from graces, and knew the same thing could quickly happen to them. Just because it hasn't (yet) seen the same fate doesn't make them criminals or even idiots for selling the company. Greenspan's argument is further undermined by the fact that serious analysts, looking into the question of how to value social networking sites, say it's a virtually impossible task at this point. Too little is known about how sites like this fare over the long term for anyone to attach much confidence to a number. The fact that Greenspan is so sure on the valuation, only makes his argument seem less serious.
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