Shareholders pummeled again by Euroweb (EWEB)
Euroweb (EWEB) reminds me of Mel Brooks’ The Producers. It almost seems as if management is trying to do the worst job possible; that they get some hidden benefit for squandering shareholder capital. After selling the Eastern European ISPs, I thought Euroweb would use their cash hoard to build out their Hungarian IT outsourcing business and perhaps declare a sizable dividend.
Boy was I wrong. Euroweb first said they were going to invest squander $10M on Las Vegas construction loans. Incredibly, management timed this just as the once-booming Las Vegas real estate market went soft. Now they want to leverage a $1M investment into a “leadership” position in next generation microchip design software? Its hard to take the latest announcement seriously. After all, chip design (or EDA) software is an incredibly competitive field where tens of millions are spent for even minimal R&D efforts–a company couldn’t gain much of a foothold with $1M. My favorite part though is the title of the press release: “Euroweb Makes Announcement.” That’s the best they can do?
I’d like to believe that management would do the right thing and give the remaining cash back to their way-too-loyal shareholders. I suspect, though, that this will play out one of two ways: (1) a series of press releases announcing new initiatives, each one wackier than its predecessor, until **gasp** the money is gone; or (2) after driving shares into the ground, management takes the company private at a ridiculous price, sells the IT business, pockets the cash, and dissolves the corporation.
I was lucky enough to get out of this stinker with a small loss in late June. It only remains on my watchlist for entertainment value, and as a reminder that cash on the books does not create an impermeable floor on share prices.
DISCLOSURE: I have no position in EWEB. Not a recommendation to buy or sell any security. For informational and educational purposes only.
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