We at ChaPaVe Partners propose AOL, Inc. (AOL) launch a Tactical Tender Offer for up to 7,500,000 shares of the outstanding shares of Travelzoo Inc.(TZOO) common stock at a price to be determined just prior to filing AOL's TTO with the SEC and subject to certain conditions as outlined below.
We are intent on unleashing value for both Travelzoo and AOL shareholders who have seen their shares sink over the last twelve months. The two combined subscriber bases are demographically poised to take advantage of the imminent legalization of on-line gambling with possible ventures with highly regarded brick and mortar casino operators such as WYNN Resorts,LTD (WYNN), Las Vegas Sands Corp.(LVS), and MGM Resorts International (MGM). Presumably Travelzoo has existing promotional relationships with many of these companies.
We believe that Travelzoo has grown its business efficiently using internally generated cash flow in a market segment that has growing consumer appeal in this difficult economic environment where consumers are looking to save on their travel and leisure expenditures through on-line purchasing. We view the AOL and TZOO combination as a mutually beneficial merger from both a financial and management perspective. AOL has recently come under scrutiny by shareholder Starboard Value LP.
We believe the combined AOL/TZOO can focus on cash and value generation through sales and spin offs of non-core assets to return both cash and new shares from pure-play spinoffs to shareholders in a tax efficient manner. The Travelzoo team focuses on monetizing the combined core assets with revenue enhancement from its larger combined subscriber base including smartphone users with their TZOO and AOL apps, 23 million TZOO subscribers, AOL email users, AIM instant messenger users, loyal browser users and last but not least, dial-up subscribers who are ignored by current AOL management.
Our analysis highlights include but are not limited to these potential spin-off candidates:
- Patch.com site (our EBITDA 2011E,-145m) which should be funded by VCs and managed as a separate company.
- AOL Advertising (our estimated LTM REV 365m) which is comparable to ValueClick, Inc. (VCLK) both in terms of traffic and reach although generating approximately 66% of VCLK's revenue.
We believe Travelzoo can efficiently boost growth by conservatively doubling its subscriber base immediately with increased sales volumes from this new combined user base. This combination could be immediately accretive to earnings.
We have been in discussions with investors and investment banks who have expressed an interest in financing the combination of these two companies and funding a TTO which could be repaid from sale of non-core or redundant assets of the combined companies post-closing. We are focused on TZOO's longer term growth opportunities, including but not limited to this possible combination, with a strategically complementary company such as AOL.
We believe the conditions for accomplishing this proposed AOL/TZOO combination via TTO would be:
- Travelzoo founder and controlling shareholder, Ralph Bartel, agreeing to a dialog with AOL to explore and complete such a transaction, thereby getting minority shareholders' interest better aligned with his controlling interest.
- TZOO meeting with AOL's management and its largest shareholders to develop a reasonable approach and commitment to combine AOL and TZOO.
We created the Tactical Tender Offer to align minority shareholders' interests with controlling shareholders' interests. We know these companies are often very independent and therefore often overlooked by activist investors. By reasonably showing a path to a compelling opportunity for all shareholders, we look forward to a transaction to unleash real value.
Disclosure: I am long TZOO.