Details of Groove Networks' sour deal

Robert Weisman has done some digging on the acquisition of Groove Networks by Microsoft in today's Boston Globe. And what he found was not gold, but dirt. It turns out that Groove was actually sold at a loss of about $35 million -- that's $35 million less than what investors had put in. When you take into account that Microsoft was a majority investor in the company, this feels a little curious. But what was worse was that there were several types of stock, and since the company was sold at a loss, some stock holders -- mainly rank and file employees -- got nothing at all. Who was the biggest shareholder that did get fully compensated? Microsoft, who PAID ITSELF $80 million of the $120 million purchase price.

Now one might just write this off as typical business wheeling and dealing. But there appear to be even more unsavory business practices involved in the acquisition as well. Mr. Weisman notes:

''Stockholders were not provided with the supposedly final merger agreement . . . until 9:53 p.m. on March 8, 2005," the complaint said. ''Stockholders were then asked to give their written consent no later than 9 a.m. the following morning, thus giving stockholders zero business hours in which to conduct their review of (and seek advice regarding) the supposedly finalized merger documents."

Many articles were written about this deal and how it validated Ray Ozzie's vision and business model (here's one from CNET). Somehow, I don't expect we'll see a similar flood about this lawsuit being brought by one of the Groove investors. But it does indicate any company -- no matter who is running it and how smart their investors -- needs to count their fingers and toes after shaking hands with Microsoft.