FriendFinder Networks (FFN) is probably the biggest internet company you have never heard of, until now. With all the Facebook (NASDAQ:FB) news, surprisingly FriendFinder has more than 50% of Facebook's subscribers, at just over 500 million. FriendFinder generates about $330 million in annual revenue. Their websites are mostly under the radar with the exception of their famous brand Penthouse. I think FriendFinder is an attractive undervalued business and a prime candidate for a takeover offer, which CNBC speculated about few months ago.
In 2011, FriendFinder went public at $10 per share, which created the market capitalization of about $320 million. As of Friday's close, the market capitalization was a mere $23 million and the performance has been a disaster for newer shareholders who bought at the IPO. Sound familiar?
However, this a different situation and the oversold status represents a very unusual opportunity for new money to invest as the senior management is still holding over 51% of the company and over the past weeks have filed SEC forms about new employee stock option incentives.
Along with the insider shareholders, the largest bond holder, Andrew Conru owns about 50% of the bond debt, or $250 million. He also has a 12% position with the common equity and has the ability to materially control the debt burden with the public company officers. The debt burden has been the main driver of the selling/shorting pressure but I suspect a deal will be reached and the balance sheet will be cleaned up as the main shareholders and bondholders have too much to loose with the alternatives, i.e. losses and shareholder lawsuits.
So, here's the deal, if FriendFinder reaches a debt deal and the stock rises or an acquisition offer is given at 50% of the original IPO ($5) , it would represent a 700% gain from Friday's close. Worst case, the shorts will have to cover and if the stock goes back $3, or 30% of the IPO, it will still be a 400% gain for new shareholders.
You've got a new Friend request and your'e welcome!
Disclosure: I am long FFN.