Shareholders Benefit From Net Buyouts - TheStreet

Shareholders Benefit From Net Buyouts

The Net sector's valuations make sense only if companies pay premiums to merge and dominate.
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Just when you think stocks are outrageously valued, some company comes along and pays more. When I drafted CareInsite (CARI) , it was with the knowledge that the guy behind the company was a dealmaker and we would make some money and then get taken out. That's exactly what happened.

Part of the fascination

Matt "B2B" Jacobs

and I have about the Net in general and this area specifically is that other companies need to buy your company to justify their currency. In other words, the valuations of the sector only make sense if companies pay premiums using their stock to buy other companies and dominate. That is the way

Healtheon

(HLTH)

runs its business. It goes from deal to deal, rolling up everything in sight.

If it weren't for the corporate buyer, we might be tempted to think this whole thing plays out badly. But the corporate buyer has such an incentive to do the deal (venture capitalists all talk, the bankers love the fees, the market wants more liquidity) that the urge to merge is simply too great.

And you, the shareholder, wins.

Random musings:

We shook off London, we shook off France, and the tone gets better, justifying our meager buys.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. Cramer's fund may be long or short certain stocks in his B2B rotisserie league or TheStreet.com New Tech 30 index. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. 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 at

jjcletters@thestreet.com.