Was MySpace Sold on the Cheap?

One of the site's co-founders offers new evidence that parent Intermix Media knew the $580 million it accepted from News Corp. was too low

by Olga Kharif

When News Corp. (NWS) Chief Executive Rupert Murdoch paid $580 million for Intermix Media, parent of social network MySpace.com, talk was he overpaid. MySpace lacks a business model, and the cool kids who flock to the site will hit the road as soon as it sells out to Big Media—or so the argument ran.

More than a year later, overpaying is a moot point. MySpace.com's traffic has more than doubled, and the site has become the sixth-most popular in the world. If anything, News Corp. didn't pay anywhere near enough, say some Intermix shareholders. And they're taking that frustration to court, filing complaints that accuse Intermix management of breaching fiduciary duty and disseminating misleading information.

Indeed, in the year since the News Corp. purchase, MySpace's net worth has nearly tripled, to $1.5 billion, according to Soleil-Media Metrix. "This is probably one of the best acquisitions ever," says M&A expert Tom Taulli. And that value should climb some 20% a year, along with the growth of the online advertising market, figures Laura Martin, an analyst with Soleil-Media Metrix. "It obviously wasn't a good deal for [original] shareholders," she says. "If they waited a year, they would have gotten $1 billion more."

VIACOM ICED OUT?

Some shareholders say they would have done just that, had Intermix management been more forthcoming with information on the company's value. And on Oct. 5, MySpace co-founder Brad Greenspan went public with information he says shows Intermix knew it was selling MySpace on the cheap.

In a report, Greenspan alleges the Intermix board knew MySpace.com was worth significantly more than News Corp. paid. He also claims Intermix refused to work with News Corp. rival Viacom (VIA), which was considering placing a competing bid for MySpace.com. Greenspan owned 10% of Intermix at the time of the sale.

Greenspan has made such allegations before, but now he's backing them up with what he says is evidence, including internal e-mails he's obtained through legal action. One e-mail, published on Greenspan's site (www.freemyspace.com) and authored by Intermix CEO Richard Rosenblatt, reads, "I am looking forward to supporting the 20B dream." Greenspan says it's a reference to the idea that MySpace will be worth $20 billion in coming years—and that Intermix top management knew it.

"SOUR GRAPES."

Another e-mail indicates Intermix was also fielding overtures from Viacom, according to Greenspan. A Viacom executive "just called w lots of luv," writes Rosenblatt to Intermix Chief Operating Officer Sherm Atkinson. Viacom did not respond to a request for comment. Rosenblatt, now CEO of Demand Media, declined to comment through a company spokesperson.

In a statement to BusinessWeek.com, News Corp. said: "It's unfortunate that Mr. Greenspan continues to issue press releases complaining about a deal that many industry experts initially believed was a risk for News Corp. to take. We've strategically built this business since the acquisition and are just now beginning to realize real financial value. This is simply a case of sour grapes making for loud complaints."

Greenspan also alleges shareholders weren't provided with key revenue data that would have helped them make a more educated decision at the time of the deal. "No one knew what the revenue of MySpace was," Greenspan says. "MySpace has hidden it from everybody."

BIG-GUN LAWYERS.

Though he's among the most vocal, Greenspan isn't the only former MySpace investor disappointed with the sale to News Corp. "As a shareholder of MySpace, my strong preference would have been not to have sold the company," says Geoff Yang, a founding partner at Redpoint Ventures, which funded MySpace.com. Redpoint hasn't sued Intermix over the deal, but others have.