VerticalNet Deal Draws Divergent Views

Forget about Al Gore and George W. Bush. Views on VerticalNet(VERT) are split as well.

Analysts came out with mixed opinions on VerticalNet's decision to buy online credit company SierraCities.com(BTOB) for about $133 million in VerticalNet stock. Investors, however, saw only one side Wednesday. In the midst of a broad technology selloff Wednesday, VerticalNet shares fell $3.44, or 12%, to $24.38.

VerticalNet, which has made at least 20 acquisitions in the last two years, plans to use SierraCities.com to allow companies that use its network of Web sites to check the credit quality of prospective customers.

But Tim Klein, an analyst at U.S. Bancorp Piper Jaffray, downgraded VerticalNet Wednesday to buy from strong buy, citing new risks at the company after the acquisition. The "acquisition raises [a] number of concerns topped by added execution risk," Klein wrote in his note. "As we've indicated previously, VerticalNet has significant execution challenges in the areas of e-commerce sales, service and traffic generation. While it can be argued that the proposed acquisition will help in some of these areas, we believe that such a benefit does not exist in the near term." (Piper hasn't done recent underwriting for the company.)

But at Gerard Klauer Mattison, analyst Alan Weichelbaum, who rates the stock a buy, saw the acquisition in a more positive light.

The "acquisition broadens VERT's product offering," wrote Weichelbaum, who added that the deal carries strategic benefits. (Gerard Klauer hasn't done recent underwriting for the company.)

For one thing, it will allow VerticalNet to offer credit scoring, which involves computer scoring of a customer's credit worthiness. "The absence of online credit scoring has been an impediment to B2B transactions," Weichelbaum wrote. For another, the deal gives VerticalNet additional services to cross-sell to customers and marketplaces.

It's not the first time analysts have had divided views on VerticalNet. Earlier this year, the stock created controversy among the analysts who follow it. But on Wednesday, investors were buying only one point of view.

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