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    Should They?

    (December 26, 2001)  On Christmas Eve, HotJobs turned up the pressure, giving TMP  72 hours to respond to Yahoo's opposing bid. The unsolicited Yahoo offer, which includes $228 million in cash is the first time we can remember that an Internet company is the target of two competing bids. Of course, it's happening in our backyard. Online Recruiting is the best kept secret in the dot-com disintegration. And, obviously, we're headed into a season of growth.

    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.


    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:

        - Sweeten the bid for HotJobs significantly; or
        - Unveil a detailed strategy for acquiring and integrating services at the next level of detail.

    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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