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Can Dialog make the transition?

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The Dialog Corporation, the London-headquartered current incarnation of the oldest online information service in the world, has made a desperate throw at producing portal services for business, science and technology in conjunction with Netscape. The sites looks rather bleak at present, but they are intended to appeal to online searchers who often lurk in libraries. Researchers are also being offered the possibility of paying for individual searches by credit card, instead of committing to a monthly minimum. Dialog previously ran into difficulties when it finally recognised that technology had long overtaken the possibility of continuing with connect-time charging for database searching. However, the company unintentionally got the pricing formula wrong, and lost around 10 per cent of its revenue as a result. Although Dialog searches tend to be more expensive than searches on other for-fee databases, it does have the advantage of having a large number of databases in one place, and flat-fee pricing plans for major users. Profits were down 77 per cent in Q1, and the delay in the signing off of the 1998 financial statements resulted in rumours that the accounts were to be qualified - which turned out not to be the case, although the notes to the financial statements are strictly for those addicted to such things. When the 1998 results came, they showed a below-expectations pre-tax profit of £5.6 million for the merged company, but a total debt of £154 million at the end of December 1998. Q2 produced revenue of £45 million, and net profit of £1.3 million. Chase Manhattan and Salomon Smith Barney are the new financial advisers for the restructuring of the debt, with Chase having put in $25 million, repayable in 2002. A deal with Fujitsu for it to use Dialog's InfoSort indexing tool is apparently bringing in revenue, but an earlier announcement that Dialog was working with Microsoft in the early days of MSN did little more than run up the share price for a time. The expectation is that the Fujitsu deal should yield more than £10 million in Q3, according to chairman Allen Thomas. Dialog had its origins in 1965 when Lockheed Missiles and Space demonstrated an interactive information retrieval system using a language called Dialog, which resulted in a contract from NASA to develop RECON, and subsequently gave rise in 1972 to a commercial service called Dialog. In 1988, Lockheed sold the service to Knight Ridder, a newspaper group that was unable to make much progress with the new-fangled technology and the crying need for proper Internet conversion, so sold it to MAID in 1997 in order to raise funds to pay for four new newspapers. At the end of 1996, MAID had a turnover of $34 million and a net loss of $19 million, which made the move by CEO Dan Wagner to acquire Dialog for $434 million a very bold one. However, the company was a marketing-driven merchandiser so there was hope - and gross indebtedness of $257 million after the acquisition and name change by MAID to the Dialog Corporation. The Internet conversion is now complete, but it was a tortuous business to convert ancient file structures developed 30 years or so ago into a modern system. In November, repayment of £6.6 million of senior debt falls due. The share price has collapsed in the last year from a high of $11.875 to a low of $3 in December, and is currently around $4.50. Whether Dialog represents a good buy at that price, or whether the risk is too great, is a matter of judgement. At least, the insiders have not been selling. ®

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