While the popularity of MySpace continues to grow (some analysts claim the business may be worth as much as US$20 billion), its alleged creator and former CEO, Brad Greenspan, has unsuccessfully sued his former company, Intermix, on the grounds that it withheld information from shareholders and sold out to NewsCorp too cheaply.
The LA Times reported that Greenspan brought the action on the grounds that “News Corp. acquired Intermix as the result of an unfair process and at an unfair price that did not reflect its growth and prospects.” Despite LA Superior Court judge, Carolyn Kuhl, dismissing the claim, Greenspan is still calling for US federal investigation of what was allegedly “one of the largest merger and acquisition scandals in US history.”
While NewsCorp was initially criticized when it completed the MySpace acquisition, it has turned out to be one of the shrewdest internet purchases of recent years. NewsCorp paid the bargain price of US$580 million for MySpace – it then more than recouped that amount after agreeing to a US$900 million advertising deal with Google in August. The LA Times noted that “an RBC Capital Markets analyst Jordan Rohan last week predicted that the social networking site could be worth US$15 billion to US$20 billion within a few years, based on its unprecedented usage growth, international appeal, scale and management team.”
According to Greenspan’s website, in mid-2003, eUniverse created MySpace. Greenspan was the CEO, Chairman and majority shareholder in eUniverse while the MySpace team consisted of current MySpace president, Chris DeWolfe while Tom Anderson (the “face” of MySpace) was a more junior employee. Greenspan then claimed that he was “forced to leave eUniverse at the end of October as a Venture Capital (VantagePoint Ventures) firm fraudulently took control of eUniverse and MySpace. This VC firm brought in a new CEO Richard Rosenblatt who instead of continuing to promote MySpace with eUniverse’s resources, decided to sell off big chunks of MySpace for next to nothing.”
After Greenspan was forced out of eUniverse (which was then renamed Intermix) the company ran into problems in the form of New York AG, Elliot Spitzer. In April 2005, Spitzer sued Intermix, alleging that “the firm was the source of ‘Spyware’ and ‘adware’ that has been secretly installed on millions of home computers.” The company eventually settled the action for US$7.9 million. However, according to Greenspan, Intermix insiders began selling off Intermix stock after they caught wind of the legal action (but before the action had been made public).
The crux of Greenspan’s legal action against Intermix was that the company sold out too cheaply to NewsCorp and turned its back on a possible rival bid from NewsCorp rival, Viacom (which would have increased the sale price received by shareholders). While Greenspan, who owned 10% of Intermix at the time of the NewsCorp acquisition, voted in favour of the deal, he claims that shareholders were not informed of the true value of the company. Greenspan alleges that Rosenblatt “knew [MySpace] was worth billions of dollars [but] he was able to pass it off to News Corp to get a sweetheart deal for himself.”
Mike Angus, general counsel of News Corporation’s Fox Interactive Media, noted that “News Corporation and Fox Interactive Media feel vindicated by Judge Kuhl’s ruling and have always believed that this is merely a situation of unchecked envy leading to a loss of common sense.”
The man at the centre of Greenspan’s claims, Richard Rosenblatt, stated he had “exercised great restraint in not responding to Mr. Greenspan’s baseless and defamatory claims about the propriety of the News Corp. acquisition and my role in the transaction [and that] lost in all the rhetoric is that we delivered to the shareholders, including Mr. Greenspan, a nearly 700 percent increase in stock price.”
Despite failing in court, there is no need to feel too sorry for Greenspan — he still managed to take home US$47 million when NewsCorp acquired MySpace last year.