Answers.com Slides Hard On Stock Sale

Answers.com (ANSW) shares were among the worst performing share on the Nasdaq Friday, apparently due to the company’s SEC filing Thursday disclosing plans to sell 14,947,683 shares of common stock. An offering that size would dramatically increase the number of outstanding ANSW shares: even assuming underwriters do not exercise the over-allotment option on the proposed deal, the company would end up with 22,807,573 shares. In other words, the number of outstanding shares would basically triple from the current 7,859,890 shares outstanding.

The offering is designed to fund the company’s pending acquisition of Lexico Publishing Group, operator of the Web sites Dictionary.com, Thesaurus.com and Reference.com. Answers.com had agreed to pay $100 million in cash for Lexico.

In a news release Friday morning, Answers also announced plan to sell $8.5 million of 8% senior secured convertible notes due 2010; the notes are convertible at the lesser of $9 and 110% of the price at which the company’s shares will be sold in a follow-on offering, which I presume refers to the stock offering they filed for Thursday.

In that same release, the company said it has modified the terms of the Lexico deal to include the right to hold back $10 million of the purchase price for 24 months following the closing. The holdback would include “the granting of a security interest in all of the company’s assets and intellectual property to the seller,” though it would be junior to the convertible notes.

Also Friday, Answers said it expects to report revenue for the fourth quarter of $2.95 million to $2.98 million, with adjusted EBITDA of $75,000 to $150,000, within its previously forecast range.

And finally, in another release, Lexico said it expects Q4 revenue of $3.1 million to $3.4 million, up from $2.1 million in Q3 and $2 million in Q4 2006.

Answers.com at this time is down $1.07, or 20.7%, at $4.09. The drop in the stock price raises questions about the company’s ability to finance the Lexico purchase: at the current price, the stock offering would only raise $60 million, rather than the planned $100 million. the convertible deal, and the holdback arrangement will get them closer to the $100 purchase price, but do not completely close the gap.