EGreetings: IPO today, acquired tomorrow?

On what is likely to be the last actual trading day of the IPO season, eGreetings Networks is trying to slip one by investors with a business model that isn't likely to last long. No need to worry though, eGreetings probably won't make it six months before it's bought out.

The time between an IPO and merger is getting shorter all the time. Yesmail.com goes public in September and is bought in December by CMGI, which incidentally has a habit of plucking young companies off the public markets.

When you look at eGreetings regulatory filings you have to wonder why it even bothered with an IPO. Revenue for the nine months ending September 30 were $1.5m (£1m)with a loss of $22m. EGreetings gets most of its revenue from advertising and direct marketing and its largest advertiser just split (more on that later).

EGreetings, which offers online greeting cards and plans to meld content with commerce and direct marketing, is offering 6 million shares in a range of $8 to $10. The lead underwriter was CS First Boston.

EGreetings offers 5,000 digital greetings with graphics, animations and music that consumers can personalise and send for free. Sound familiar? It should because eGreetings is in the same business as Bluemountainarts.com, which was acquired by Excite@Home.

If Bluemountainarts.com had to find a buyer as Amazon.com, Yahoo!, and a host of others entered the greeting business, what makes eGreetings think it can compete?

It can't compete and that's why it'll be gobbled up or broke before one of those sappy animated cards stops playing.

The IPO is just an interim step for eGreetings. An acquisition is a wild card right now because eGreetings' largest shareholder Gibson is currently being acquired.

We are taking a leap in figuring eGreetings will be acquired but we're not jumping the Grand Canyon here.

Here's a likely scenario we cooked up:

EGreetings relies on Gibson Greetings for about 36 percent of its content. American Greetings, Inc. in a deal announced in November, however, is acquiring Gibson. American Greetings also is the parent company of AmericanGreetings.com, which competes with eGreetings. Once American Greetings is done acquiring Gibson, American Greetings may decide it doesn't want to own shares of a competitor. American Greetings could buy eGreetings outright or dish it off to another company.

"As a competitor, American Greetings' interests may diverge from our interests, and it may take actions that would harm us competitively, despite its status as our largest stockholder," the company said in filings.

And if American Greetings doesn't sell or acquire eGreetings, it's highly likely the company will need some company to rescue it. EGreetings said Excite@Home, which cut advertising ties to eGreetings in November, accounted for 40 percent of its already skimpy revenue for the nine months ending September 30.

"We do not anticipate receiving any future advertising revenues from Excite@Home," the company said.

Ouch.

So what company could rescue eGreetings?

We know who the buyers won't be. Amazon.com, America Online, Excite@Home, Microsoft and Yahoo! all offer digital greetings as part of a larger package or e-commerce deal. Hallmark and 123greetings.com are also competitors, but aren't likely to be interested.

That leaves either a portal without greeting cards or a company with direct marketing skills that can turn eGreetings into a commerce doorway. Process of elimination leaves Lycos or CMGI. Our bet would be CMGI. And why not -- CMGI is buying up everything else.

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