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Tiny SEC Filing Gave a Big Hint To Vastera's Plans

Davenport won't say when talks with J.P. Morgan Chase began. He said details will be disclosed in materials to be sent this spring to shareholders, who are to vote on the buyout. Until that information becomes public, it will be impossible to tell if there was a leak that resulted in illegal insider trading.

Shareholder approval of the deal shouldn't be a problem because two of the company's biggest shareholders have already agreed to vote for the deal. Ford Motor Co. and Technology Crossover Ventures together own about 29 percent of the stock. A simple majority is needed to ratify the agreement reached by company executives.

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Completion of the deal will close the book on Vastera, whose brief history teaches Washington investors that a start-up company can succeed in its business and fail as an investment.

Vastera, started a dozen years ago, created a system to computerize the paperwork involved with importing and exporting products. It keeps track of shipping and handling costs, duties, tariffs and all the other paperwork involved in moving goods from one country to another. Vastera can take over the whole process as an "outsourcing contractor" providing the people, software and hardware to handle the entire job.

A decade ago, Vastera's business was bringing in a million dollars a year and losing money. Five years ago, when Vastera went public, volume had risen to $22 million in the first three quarters and the business was still losing money. In the first nine months of last year, revenue totaled almost $64 million, but still there was no profit.

The company has pretty much done what it set out to do after it went public in the fall of 2000. Vastera has become "the largest international trade logistics technology vendor," said the Aberdeen Group, a business research service.

These days investors are no longer willing to reward a firm for achieving its goals as they wait patiently for profits. Vastera's stock, which jumped from its $14 offering price to $23 days after the IPO, fell to the $5 range in early June 2002 and never recovered.

While not profitable, Vastera isn't bleeding red ink. The loss for the first three quarters of 2004 was only about $3.6 million. With $55 million remaining from its $84 million IPO, the company is in no danger of going broke anytime soon.

On the other hand, Davenport said, there isn't enough money for Vastera to grow as fast as it must to keep up with the needs of its customers.

Most of them are multinational corporations, he said. "Our largest customers were asking us to provide services in places around the globe where we couldn't afford to provide either the infrastructure or the personnel."

Unfortunately for small companies like Vastera, the giant companies prefer doing business with other giants. Fortunately for Vastera, it had a ready partner. The company was already working with J.P. Morgan Chase, which provided financial services to many of Vastera's clients.

As Davenport explained it, Vastera managed the physical supply chain for exporters and importers while the J.P. Morgan Chase bank managed the fiscal supply chain. The two chains are parallel, so combining them simplifies the process and cuts costs.

Vastera will continue to independently market its service of managing export-import paperwork. But more growth is expected to come from bundling Vastera's software and services into a package offered by J.P. Morgan Chase, which will keep track of both the goods that are being imported and the payments needed at each step of the process.

The merger may make business sense, but it is not a great deal for shareholders -- not when the deal gives them $3 for stock that was originally sold to the public for $14.

J.P. Morgan Chase isn't even paying that much for the stock. The purchase price officially is $129 million, but Vastera has $55 million in cash and short-term investments. That money will go to J.P. Morgan Chase, reducing the purchase price to $74 million.

That is less than one year's revenue for Vastera, a low price to pay for any firm, even one that has yet to earn a profit. How Vastera came up with that price is one more question that will be answered after it publishes details for shareholders to vote on.

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