Time for Interactive to Go Shopping?

Interactive's (IACI) Barry Diller has uncanny timing. Little more than a month before October's bloodletting in the stock market began in earnest, he completed a spin off of the multiple divisions that formerly comprised the IACI conglomerate. Many of those divisions were seen as low growth and / or a drag on earnings that kept IACI from achieving the kind of valuation it deserved. This has proven to be quite fortuitous timing, as it is hard to imagine that the financing necessary to complete these spin offs could have occured if attempted this month instead.

Interactive is now in the enviable position of sitting on a cash hoard of nearly $1.6 Billion that it can use to "go shopping" for technology and content that will add to the potential of the smaller, sleeker and ready to grow Interactive.

Recent interviews with Barry Diller suggest that the company is actively seeking acquisition candidates, particularly smaller deals that can add value to IAC's search (Ask.com) and local content offerings. With that in mind, we did a little digging to try and come up with some potential acquisition targets that fit Diller's criteria. We were surprised to find that several of the publicly traded companies that fit this criteria particularly well had fallen so far out of favor with investors that they have traded down well below any measure of value that we could conjure.

Case in point – Looksmart (LOOK). Looksmart is an online advertising and technology solutions company that develops, markets, and sells advertising products to text and display advertisers and advertising agencies. One of Looksmart's many customers is IACI's Ask.com, whose sponsored search listings run on the Looksmart platform. Looksmart would appear to be a very obvious acquisition candidate that appears to have very little integration risk since it is already used as Ask.com's Pay Per Click platform.

In addition to providing IACI a proprietary offering in the Pay Per Click and display advertising space, Looksmart owns the popular social booking marking service"furl.net"and currently has $32 million in cash on its books. On a per share basis, that means that the company has $2.02 per share in cash. As of the writing of this article, the stock was trading at only $1.86 per share. Thus, Looksmart is a company with attractive technology assets, thousands of advertising customers, provides the backbone for Ask.com's current pay per click service and it has cash in the bank worth 10% more than its current trading price.

Another company that IACI might find attractive is Miva. Miva owns the largest of the "second tier" pay per click networks, a growing toolbar search and homepage business through its "alot.com" subsidiary that currently boasts over 5 million installations and numerous consumer oriented web sites (Screensavers.com, Spill.com movie review site and WeatherStudio.com).

Miva has been mentioned previously as a takeover candidate for ValueClick (VCLK) and it received an unsolicited offer from the UK's Blinx.com for $1.20 per share in cash back in August. Despite Miva's attractive assets, its cash holdings of $17 million + (around 50 cents per share) and the fact that another company was recently willing to pay $1.20 per share in cash to acquire them, Miva's stock has been hammered during the recent market sell off, down to as low as 32 cents per share. As of the close yesterday, the stock was trading at 36 cents per share, giving it a market cap of just over $12 million. Miva is perhaps the best example of the ridiculous valuations that can occur in the midst of a market meltdown – its stock just closed at a price that is over 30% below the cash on its books, in spite of recent cash acquisition overtures more than 300% higher than this price and some very attractive assets that generate over $130 million in revenues per year.

While we all wait with bated breath to see what IACI's first move will be, I would not be surprised to learn that Diller has chosen to stake his claim in the Pay Per Click advertising space via a purchase of either Looksmart or Miva. Even if an IACI deal for one of these companies does not materialize, investors in either Looksmart of Miva at current valuations should be handsomely rewarded as other buyers emerge or the companies themselves take steps to boost their stock prices to fend off such deals.

Disclosure: Long IACI, VCLK, LOOK, MIVA.

Comments

[LookingConf...:]

Great thought you have expressed there. But I do feel that both Looksmart and MIVA (rather than becoming a part of IAC), should consider their own mutual type "get-together" and a strong argument could be put for them to do so. Time will tell for both of them, I guess.

Cheers!!

Disclosure: Long LOOK

2008 Oct 24 02:56 AM