Former CEO Suggests infoGroup Should Explore Sale

Let's say you wanted to acquire a public company. Would you announce to the world that you wanted to buy the company, most likely causing its shares to rise and increase the amount you would probably have to pay? Or would you negotiate a deal behind closed doors and try to get the best possible price? We'll assume most of you would go with Option B.

That's why we're suspicious of the motives behind a press release issued by former infoGroup Inc. (IUSA) chairman and CEO Vinod Gupta, who said on Monday he believes the data marketing company should explore a sale and that he would consider selling his shares, but also that he was exploring a proposal to acquire the 60% stake in the company he currently does not own.

Gupta was stripped of both of his positions in the company over the past year following a review of the company's spending practices that was triggered by a shareholder lawsuit. The committee determined that Gupta spent millions of dollars in company money on private jets, real estate, a yacht, country club memberships and luxury cars.

It's unclear whether Gupta is even in a position to acquire the company. As part of the terms of a settlement agreement with the shareholders, Gupta signed a standstill agreement that does not allow him to acquire stock in the company until July 2009.

Assuming, for the moment, that Gupta really isn't interested in acquiring the company, does he have other motives for putting the company in play? According to regulatory documents, Gupta pledged a total of 9.3 million shares of stock, or roughly 41% of his 22.8 million share stake, to secure repayment of a loan. It's possible that the lenders want payment and are asking for the shares, or that Gupta needs to sell some shares to raise money to pay back the loans. Those loans, undoubtedly, were made when infoGroup shares were much higher than where they are trading today. Gupta also has to repay the company $2.2 million in January as part of a $9 million settlement agreement reached with the shareholders. Gupta has been paid $5 million of a $10 million severance agreement negotiated with the company, but won't get the other $5 million until after the company's 2009 annual meeting.

In response to Gupta's press release, infoGroup issued its own statement, saying the current economic environment and state of the capital markets "suggests that this would be a challenging time to try to maximize shareholder value by selling the company." Nevertheless, it said it would review with its financial adviser, Evercore Partners, whether a sale would be in the best interests of the company. It also said that if Gupta does wish to sell some or all of his shares, the company "will do what is practical to cooperate with those efforts."

Shares of infoGroup were trading at $4.37 mid-day Monday, up 10%. -- David Shabelman

See Dec. 22 press release from Vinod Gupta
See Dec. 22 press release from infoGroup