A THK/CPNE marriage would be a good fit for several reasons including the synergies resulting from each company’s strong presence in the “home based business” lead generation space and the potential for THK to leverage the very low cost fulfillment infrastructure already built out by CPNE. Probably the greatest benefit from such a merger would come from THK’s unique ability to address the only apparent significant operational issue that has recently plagued CPNE. In its last 10Q, the CPNE CEO disclosed that the company’s very profitable affiliate program channel had experienced some issues related to affiliate fraud / chargeback scenarios that might limit the company’s willingness to use that channel that had been so productive in the past. Think Partnership’s patent pending fraud prevention technology (ValidClick) that is integrated with its Kowabunga affiliate platform could curtail such issues and allow the company to operate in that channel that allowed them to book profits in Q1 2007 that were about 50% higher than they were before or after.
Joining THK’s direct division with Commerce Planet would double the size and profitability of THK’s direct division and enable it to have the scale to be among the most significant players in the lead generation space. It appears that THK could offer a premium of more than 100% of CPNE’s current stock price and still have a deal that is highly accretive. Further, bringing the CPNE assets into the fold would create another significant revenue stream for Kowabunga’s click fraud free affiliate network and possibly other THK divisions due to CPNE’s spending over $10 million per year for online advertising.
I agree with Gilliam’s general proposition that internet lead generation companies are undervalued, and as a shareholder I would welcome “a premium of more than 100%.” Strategically, if and when the economy slows, lead generation for home business opportunities (a focus of both CPNE and THK) should become more valuable. The possibility of a combined entity is intriguing, but keep in mind that there is no evidence the companies are presently considering a merger.
DISCLOSURE: Long CPNE.OB; no position in THK.