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Given the fact that Barry Diller's newly
re-energized Vivendi / USANetworks (Vivendi has
been eyeballing the American Recruitment market for years) brings enough
leverage to the global market to instantly open the doors on a real recruitment
business, we see the acquisition of HotJobs as pivotal in the marketplace. The
decision to proceed or not is, quite simply, a make or break decision for TMP. A
fully featured media company must include Recruitment products and services as a
counterbalance to more traditional product advertising. The newspaper industry
stands as a remarkable proof that Recruitment revenues are the difference
between profitability and red ink during most years. Recruitment provides the
cash cow (simply look at the Yahoo economics) that allows huge indulgences in
other arenas. Of course, the notion that Yahoo would be able
to execute the full range of possibilities in the deal is laughable. The
newspapers have very consistently failed to understand that a cash cow requires
enormous startup investment. Harvesting HotJobs is a far bigger endeavor than
the current conversation indicates. A cash cow, maybe, but a difficult to
execute business nonetheless. The HotJobs team, decimated by 6 months of acquisition
uncertainty is no bargain. HotJobs is very likely to languish in the very same
hole that Career Builder has stuffed Headhunter. Post
acquisition uncertainties have plagued customer and vendor relationships,
destroying the company's value in the process. We imagine that there is a loud group within
the TMP decision structure who argue that allowing Yahoo into the game is the
best way to grow the company. Anyone with trench level experience in our
universe understands that the game is played in direct contravention of
"normal" business practice. The most reasonable forecast for a
Yahoo-HotJobs combination would be the earlier than anticipated death of
HotJobs. Without a clear plan for additional and substantial investment (as the
media companies will eventually deliver), HotJobs is in the unfortunate position
of becoming a cash cow now, before it is fully mature. This, we think, is the
case that Andrew McElvey is trying to make to HotJobs shareholders. The hidden player in this soap opera is the
Federal Trade Commission. The inordinate foot-dragging that characterizes their
regulatory investigation of the TMP-HotJobs deal is the fundamental reason that
the question is on the table. With renewed attention on the area, we can't
imagine that there are any questions left about the viability of the market, its
ability to attract investment (Vivendi will enter whether or not Yahoo buys
HotJobs.) or the relative strength of competition within the industry. We urge
the FTC to quickly alert the market that their concerns have been addressed by
the marketplace itself and get out of the way. The only reason that Yahoo's
offer makes any sense is that the FTC's position favors their entry. Ongoing
investigation is the fundamental reason that the value of the deal has eroded
and that the HotJobs team has begun scattering. A continuation of the
investigation would constitute far more than regulation. TMP was victimized by the FTC in a unique way.
Even though they hold about a 7% share of the recruitment media market
($1B out of $14B) , the FTC investigation had the very weird effect of making
everyone believe that they had become an unstoppable force. Worst of all, people
within TMP (known for its arrogance before this episode), believed that they had
become unstoppable. The direct result is visible in TMPs significant shift
in focus towards monetizing
the candidate. While it may add revenue in the short term, it comes
at the long term expense of income from Recruitment services. TMP made this
decision because they believed the FTC's assertion that they had reached the
finite limits of the market. Hogwash. The loss of HotJobs by TMP will signal an end to
the plateau phase in Online Recruiting. It will be followed by a thorough
analytical look at the fundamentals of TMP's stock price (not as outrageous as
Yahoo's but still pretty damned inflated). By signaling its unwillingness to
continue a full court offense in the game, TMP will cede its market leadership
position. As we see it, the company has two choices: Without one or the other, TMP loses its most
valuable intangible asset: momentum. A policy of investing the acquisition money
in more advertising won't cut it. The question for stockholders and customers
alike is whether TMP will demonstrate in a clear and forceful way its market
leadership position. We think the only choice, for the moment, is to raise the
bid. This means, at the bottom line, that TMP will be forced to monetize the
market erosion caused by the FTC's meddling. While that won't go down easily,
it's today's price for market leadership.
- John
Sumser
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