ANALYSIS: Vendor takeover - How Medialink became a target foracquisition

Medialink provides audio and video services to clients

worldwide.



Yet the stock has plummeted, even before the current economic crash, and

the company is now being stalked by UBM. Robin Londner finds out why,

and what happens from here.



Ask people in the PR industry about Laurence Moskowitz, president, CEO

and chairman of Medialink, and they'll praise his passion, his early

vision of trends and potential in the video industry and his business

sense.



Then how did Medialink stock, under Moskowitz's leadership, sink as much

as 76% since its initial listing four-and-a-half years ago? The stock

opened at $9.25 on the Nasdaq in January 1997 and, after peaking

at $28.75 in April 1998, fell to $2.1875 in March 2001.

This precipitous fall has now prompted United Business Media (UBM),

owner of PRNewswire (PRN), to offer Medialink shareholders $5

cash per share, driving share prices up from $3.35 to $4.87.



The economy



Of course, Medialink has been a victim of the economic downturn. In the

first quarter of 2001, Medialink reported a profit of just $72,000 versus $1.46 million.



in the first quarter of 2000, taking a hit for exceptional restructuring

charges. In the second quarter, after taking urgent cost-cutting

measures, Medialink posted a profit of $1.03 million (versus

$2.13 million in 2000).



Moskowitz says he's "ecstatic in this environment to be reporting

profit.



We are part of a community of 40 to 50 public companies and hundreds of

private companies in a marketplace that has brought such huge names as

Amazon, Interpublic and United Media to 52-week lows."



But Medialink shares have gone down steadily since mid-1999 - in other

words, well before the economy crashed. One reason? While revenues grew

by 107% during the boom years (from $27 million in 1997 to

$57 million in 2000) - aided by acquisitions in VNR, photography

and research, as well as organic growth - earnings in the same period

rose by 40%, from $4.5 million to $6.3 million, as profit

margins decreased from 14.7% to 11.2%. (All earnings figures in this

report are EBITDA.) Another reason is that Medialink is a small cap

stock (Yahoo! Finance reports that no analysts even follow the stock,

which analysts abandoned when internet stocks became the rage.) It also

didn't help that Medialink is such a closely held stock, limiting

transactional availability.



European expansion



Medialink's share price has also been hurt by its expansion in

Europe.



While the UK-based international hub has seen 133% growth in the last

four years, it has not been without incident.



"They fell victim to the same thing a lot of Americans do when they go

abroad," says the top officer of one Medialink competitor. "They try to

translate the same things they did in America to success abroad, but

they have come up against a lot of different conditions, languages, and

other technology issues. They also tried to start a price war in the UK

and Europe, and it didn't work."



Moskowitz acknowledges there were problems in London following the

acquisition of the London bureau in 1998. Taking an exceptional charge,

he brought in Ivan Purdie to head up the sales operation. Purdie has

since been promoted to EVP of global broadcast services, with

responsibility for both the European and US operations. Says Moskowitz,

"We're the largest provider of broadcast PR services in the UK and

throughout Europe, with a stellar list of clients and the most

impressive staff we've ever assembled."



Cutting edge cuts both ways



A third reason for Medialink's vulnerability, according to Don Bates, MD

for marketing and new media at Media Distribution Services, is an

ill-timed over-emphasis on technology investments. Those include

internet news service NewsStream, a 50-50 joint venture with Business

Wire, PRN's main competitor. Bates did the PR for Media-link in its

first four years of operation and was a stockholder until the dot-com

bust.



"Perhaps they put too much into streaming video and webcasting in

advance of the market having sufficient need to use that kind of

product," says Bates, who says that Medialink is consistently ahead of

the technology curve.



Moskowitz says only that it would have been "remiss" not to invest in

internet technology. "Companies as great as General Electric and

Microsoft have made technology investments that have not worked

out."



Attractive



But it's precisely this pioneering adoption of technology, together with

the low stock price, that makes Medialink prime for UBM/PRN's takeover

attempt. New York-based Medialink has 14 offices worldwide including its

London international hub, and is the No. 1 VNR producer, with 3,000

clients including most of the blue chips and PR firms, and a diversified

range of other services including broadcasting, photography and

research.



Medialink's audio and video distribution services are doubly attractive,

however, to PRN, with its complementary press release distribution. For

if tech convergence plays out as PRN president and CEO Charlie Morin

predicts, the two services will one day be quite similar.



Morin sees a future of an integrated press release with audio, video and

other perks. He sees PRN as a corporate communications company offering

multi-media services including audio and video, as well as measurement

services. To fit that image, PRN must either grow or acquire expertise

in the very technologies Medialink dominates.



Indeed, the timing could not be better. From June 1999 to this past

April, PRN had a strategic alliance with Orbis Broadcast Group. Orbis

served as the video arm of PRN, producing all VNRs, SMTs and other forms

of electronic publicity. Cynthia Patrasso, president of Orbis, said PRN

expressed interest in purchasing Orbis, but nothing more than a

conversation occurred. However, the agreement has now been terminated,

and that's a potential shortfall for PRN.



Just before the Orbis alliance ended in February, PRN hired a ten-year

Medialink veteran, Jeff Schulman, to the newly created position of

senior producer, broadcast services. He was charged with growing PRN's

video capabilities. But growing capabilities isn't as fast as buying

them. Shoba Purushothaman, CEO of The NewsMarket, says PRN probably

decided that when it wanted to gain expertise in video, it could not

only purchase Medialink's technological investments, but its people

power as well, giving PRN an immediate leg-up. But Purushothaman says

she isn't sure PRN will get what it bargained for.



"I don't think that in this business you can count on buying loyalty,"

says Purushothaman. "You could be a cynic and say in this market

environment, there aren't many other places for people to go. But if

PRNewswire wants to buy people, and Media-link is people, is $29

million what you need to buy expertise?"



Moskowitz insists "I do not view this company as vulnerable," and says

his main concerns as he assembles his financial advisors to weigh the

UBM offer are his shareholders and employees. In an interview prior to

the takeover, Moskowitz told PRWeek that the core services were strong,

as was research (Delahaye Medialink opened a DC office just this week),

while noting that other internet activities like web and audio streaming

had softened. He added his challenge was to balance the position for

"greater success when the economy lifts."



On the other hand, if shareholders decide to sell up, for PRN to bring

onboard Medialink's 310 full-time employees into an integrated vision

will have problems of its own.



"We've seen this in a lot of other industries where two manufacturers

try to meld," says Purushothaman. "But it's interesting because this is

something playing out in our industry, where two incumbents, a

distributor of text and a distributor of video, want to mix together and

come up with the right formula. That's the big question mark - will they

be able to overcome themselves?"



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