The only ones worse off these days than dot-com shareholders are the owners of dot-com tracking stocks, particularly
Donaldson Lufkin & Jenrette's
online brokerage unit have been left out in the cold since the end of August, when
Credit Suisse First Boston
said it would buy DLJ, but let the DLJdirect tracking stock continue to trade. (The deal closed Friday.)
Since then, DLJdirect has been caught in an information vacuum. The only detail provided about the online broker is its name:
. In this vacuum, the stock, which like all tracking stocks only tracks the unit's performance but carries few rights for its shareholders, has tumbled 41% since Aug. 30, much more than competitors like
, which has given up 14%.
"They need to better communicate what the long-term strategy is going to be," says Eva Radtke, an analyst at
. "They haven't been forthcoming about how they are going to integrate CSFB into the platform." (Radtke rates the stock a hold and her firm has done no underwriting for DLJ.)
More Tracking Stocks
All this comes at a time when tracking stocks are becoming increasingly popular, at least for the companies issuing them.
all have said in the last month that they would issue tracking stocks. However, tracking stocks historically underperform the market, and for tracking stock holders, there's no separate board of directors to look out for their interests and they have limited or no voting power.
"The disclosure documents are clear that there are likely to be conflicts of interest that may be settled in the interest of the parent company and parent company shareholders. People ignore that cautionary language hoping for the best, and in this case the DLJdirect shareholders got the worst," says Patrick McGurn, vice president of corporate programs at
Institutional Shareholder Services
, a unit of
in Rockville, Md. Institutional Shareholder Services advises institutional shareholders how to vote on company proxies.
The only other tracking stock recently left out of a merger transaction is direct-marketing firm
. When France's
agreed in February to buy
, it said the Circle.com tracking stock would continue to trade. The stock fell 86% from the time the deal was announced until it closed on Sept. 27. Unlike DLJdirect, Circle.com continued to report earnings during that time.
DLJdirect however, has kept communication to a minimum. The company preannounced earnings, saying the full numbers would come with DLJ's regulatory filing in mid-November. This silence, according to a DLJdirect spokeswoman, was related to CSFB's tender offer for DLJ shares, which she says requires the companies to hold off on divulging plans. She declined to comment further.
More Information Please
Securities and Exchange Commission
, however, in January issued a new regulation enabling companies to make more information available to shareholders during takeovers. According to an SEC spokesman, a company simply needs to disclose its plans in a filing.
More likely, CSFB and DLJ haven't agreed on or decided what to do about integrating the CSFB online platform -- which has been under development for months -- with DLJdirect. Indeed, they've clearly been busy with the aggressive integration of CSFB and DLJ. Well before the deal closed, for instance, high-profile DLJ analysts already were reinitiating coverage under the CSFB rubric.
When DLJ spun the company off in an initial public offering last year, it was looking to unleash the hidden Internet value that was driving so many new companies to stratospheric levels. The move worked, but only briefly, and then the stock drifted lower. It had been trading steadily under $10 for months when the deal was announced. Investors pushed the stock up when the CSFB deal was announced in hopes that the firm would buy their stock, too, but then it tumbled when it was clear the stock would continue to trade.
CSFB's decision to allow the stock to continue to trade wasn't the only path it could've taken. The failed WorldCom-
merger would have included a share swap with a new tracking stock that would have paid
holders a premium.
When the news hit, the
message board for discussion of the stock filled up with angry investors. Now that same board shows investors talking about joining a lawsuit filed on their behalf against DLJ by
Weiss & Yourman
, a law firm that files shareholder lawsuits almost daily.
While they have few rights, tracking stock holders can sue. "Tracking stock shareholders, generally speaking, have the same right as any other stockholders in making claims against the company, no better, no worse," says Robert Messineo, a partner at New York-based law firm
Weil Gotshal & Manges
, which has represented firms with tracking stocks.
With no other information to go on, all that stands out is the company's decision to change its name, which raises serious questions. Online brokerages have spent boatloads of money during the past two years to build brands and grab market share. During the first half of the year, DLJdirect spent slightly more than $100 million to establish itself as the online brokerage aimed at high net-worth individuals. Now, CSFBdirect will have to start over, without the advantage of a known name.
"There's a lot of wasted dollars on branding," says Rich Repetto, an analyst at
Putnam Lovell Securities
. (He has a hold rating on the stock and his firm has done no underwriting for the company).
Sometime this month, shareholders will find out what they, and CSFBdirect, can salvage from it.