Cramer Looks Back: Access Beyond Blazes Into Nothing

The trader explains how a promising small-cap play turned to dust in this third of five parts.
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(Editor's Note: James J. Cramer, co-founder of TheStreet.com, is getting some rest and relaxation with his family this week. But in order to give you your daily Cramer fix, we've got a special five-part series from the trader. In this series he will focus on what went wrong during 1998. Today he focuses on how a small-cap win turns into a crushing defeat.)

Thinking I had a winner with

Access Beyond

, I watched as the company, in horrific slow motion, turned into one of the biggest investment mistakes of my career.

The stub I mentioned yesterday's

story, even at 11 1/2, would turn out to be wildly overvalued, because the price for remote access products nosedived right after this transaction. How bad did it get for this group? Access Beyond's biggest competitor was

Shiva

, a onetime highflier. Shiva's stock fell just as badly as Access Beyond, except it got rescued by a bid from

Intel

(INTC) - Get Report

.

Still, I was gung-ho about the situation and thinking, what the heck, how could I lose, because I had already taken so much money out.

Not soon after Access Beyond started trading, I went to the company's Web site and there was an advertisement for a promotion called "Access Bahamas" that gave you a free trip to the Bahamas if you ordered some of the company's product. Management was gung-ho about "Access Bahamas," but

Jeff Berkowitz

, my partner, and I were dubious. We didn't think that was a sign of strength. We were right. Before its first quarter as a public company was over, Access Beyond fell below plan.

We grilled management regularly, drilled down to the sales force, checked in with customers, and while there was some excitement for the product, there was no pricing power. Heck, they had to give away the Bahamas to move this stuff.

Again, we contented ourselves by saying that we were playing for free, even though we had more than a million shares on the line.

When a little company like Access Beyond starts up without any IPO and no formal banker, there is not much hope of trying to speak to an analyst about the company. Access kept assuring us that analysts would pick it up -- and you want that because it is incredibly helpful to put your brain together with an analyst to figure out what is going on. But we had no such luck. This company was truly swimming alone in shark-invested waters.

Still, how much can you lose?

Another quarter passed and pricing did not improve. The company was burning cash like there was no tomorrow. It kept taking costs out and taking costs out but it was never enough.

We urged the company to try to partner, to try to get someone bigger on board. The company had nothing to say.

Then one day the head of the company announced a huge surprise to us, it was merging with

Hayes

, a company in bankruptcy, and it would create a new company that would merge Access's remote technology with Hayes' modems.

Can't say that's what we wanted. But what could we do? We didn't own enough stock to block it. All we could do was hear what the president of the company had to say. I had bought into stocks that had come out of bankruptcy before. One of them,

Memorex Telex

, destroyed wealth faster than any I had ever come across. The other,

Mueller

, born of

Sharon Steel

, was a home run. But Memorex, like Hayes, represented technology and technology bankruptcies, save

Storage Tech

(STK) - Get Report

, are usually nightmares. I went in arguing heavily against the deal, saying I thought it was a mistake. Management asked to have a chance to explain the transaction over dinner.

We went to one of those incredibly high-priced midtown joints, where the president was as effusive as all get out. As we picked over food at

Le Cirque 2000

, it was clear this guy was pumped. I liked the guy. I had been to his 40th birthday party. I had gone to Atlantic City with the guy, male bonding. We had won at blackjack together. Still, I said I thought this was too risky a course of action. He said he had to do this in order to grow the company, that he needed the revenue if he were ever to make something big of the company. I told him I didn't like the risk. But he told me that there was no turning back; the Hayes deal would go through.

I had never seen him this upbeat. He outlined synergies, fabulous synergies. Cost-cutting. Debts paid off. Liquidity.

I believed again. Right then I should have blasted the stock to kingdom come. Right then I should have taken whatever I could off the table. But he convinced me to stay with him, to see it through.

It was one of my most terrible mistakes.

Thursday: Hayes Turns to Mush

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending an email to

letters@thestreet.com.