Mark Cuban's Dispute with Mamma.com

Strategic Insights -

Mark Cuban, billionaire investor and owner of the Dallas Mavericks, finds himself in a penny-ante dispute with Mamma.com, a small Canadian search engine company. Cuban bought a 6.3% stake in Mamma.com, which promptly triggered a 30% jump in share price. However, after Mamma.com announced its shift to a rollup strategy, Cuban sold his shares, citing concerns over the company's use of PIPE-type investments. The dispute has sparked a decline in Mamma.com's share price, leaving investors to wonder if Cuban's initial interest was a blessing or a curse.

Key Takeaways:

  • Mark Cuban bought a 6.3% stake in Mamma.com Inc., a small Canadian search engine company.
  • Cuban's initial investment triggered a 30% jump in Mamma.com's share price in one day.
  • Mamma.com announced its shift to a rollup strategy in late June, which prompted Cuban to sell his shares.
  • Cuban cited concerns over the company's use of PIPE-type investments, which sell stock to new investors at a discount to the public market.
  • Mamma.com's share price has declined following the dispute, falling from a high of nearly $200 million to reportedly lower figures.
  • Cuban has a track record of investing in companies that later sell, including the online company Broadcast.com Inc., which he sold to Yahoo! Inc. for $5.7 billion in 1999.
  • Cuban's blog states that he has never sold a share in any company he has taken a 5% or greater position in.
  • Mamma.com executive chairman David Goldman announced the company's "aggressive" pursuit of mergers and acquisitions, which sparked concerns among investors.

Statistics:

  • Mamma.com's market capitalization reached nearly $200 million in early April.
  • The company's 12-month trailing revenue was only $11 million.
  • Cuban's initial investment increased Mamma.com's share price by 30% in one day.
  • The company's share price quadrupled in a month, reaching a high of $12.50 per share.
  • Mamma.com has reportedly $4.5 million in the bank.
  • The company raised $16.6 million in a private placement in late June.
  • The company acquired Digital-arrow LLC, a private e-mail marketing concern, for $2.1 million in cash and shares.

Sources:

  • Sec filings
  • Mamma.com press release (February 2002)
  • Mark Cuban's blog (undated)
  • TheDeal.com article (June 2002)
  • Intasys Corp. (now Mamma.com) annual report (2001)
  • SEC documents (March 2002)