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Dot-Com Bubble Has Burst, Lunacy Continues

The unscientific use of the data is what's truly maddening. The high, low, median and mean values of these companies in March suggested a range of valuations for Staples.com of between $3.33 and $13.69. Staples -- and its two investment bankers, Thomas Weisel Partners and Wit SoundView -- decided that because the "fair value should fall generally below the middle of the range of values yielded by the financial analyses that it reviewed," $7 was as good a price as any.

Oh, meaningless comparables weren't the only key factor in the equation. Another component was the projection of $2.2 billion in sales for Staples.com in the fiscal year 2005 and net income of $107 million. That contrasts with sales of $512 million in fiscal 2000 and net losses of $82 million. The 2005 estimates assume 20% or better annual sales growth for Staples.com. Staples and its investment bankers think they know how the dot-com will do in 2005. After all of the wrenching change in this market, that's a thing of beauty.

See, the investment bankers like to throw out lots and lots of numbers with fancy explanations. All that data obscure a key point: They're making it all up. The comparables are silly. Webvan won't even exist by the time Staples shareholders vote. But most importantly, the venture capitalists will get paid.

Incidentally, Wal-Mart and Kmart shareholders may never know how Accel Partners (Wal-Mart's partner) and Softbank Venture Capital (Kmart's partner) will make out in their respective buyouts. Neither company is disclosing the terms of its buyback and neither ever made it far enough along to file for an IPO.

Ultimately, this period will be remembered as an expensive experiment rather than a significant business event. "Although Internet operations may, in our opinion, play an important marketing role for broadline retailers and will certainly facilitate certain niche functions such as baby and wedding registry, we continue to doubt that the economics of online selling will conform profitably to a discount model anytime soon," Goldman Sachs analyst George Strachan said to clients Tuesday. "With the likelihood of eventual dot-com spinoffs virtually zero and the added value of third-party advisors now diminished, we believe that Wal-Mart and Kmart are making sensible decisions to gain complete control of their online operations and related trademarks and brands."

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