Web.Com Buyout: Right Move, 2-Years Late (WWWW, WSPI)

Stock Tickers: WWWW, WSPI, GOOG, YHOO, EBAY, VRSN, AMZN

Web.com (WWWW-NASDAQ) last night finally made the right move, although they are doing it late and possibly with the wrong partner.  The company has signed an agreement to merge with Website Pros (WSPI-NASDAQ).  This is not at all meant to be negative against Website Pros at all.  More than two years ago I had noticed what was going on in the web hosting, domain registrations, e-commerce, video, blogging and the intro of an ‘ease of advertising’ were all starting to converge in a much faster manner than ever seen.  It was as if the goals of Internet-1999 were suddenly converging into a visible effort that had a lot of growth.

Register.com had either been given an offer or was rumored to be on the blocks, but the basis was the buyout of DoubleClick by Hellman & Friedman for starters.  Register.com was larger and tad a cheaper, but Web.com (then as Interland under the "INLD" ticker) was the obvious land grab.  Here we are two years later and the company is going for what is less money than it was potentially worth then.  As noted this is nothing against Website Pros, and as it hasn’t ever gotten this much coverage in the 20-ish months since its IPO this near-5% drop today is probably a gift for that company.

Web.com/Interland was name that at any time Google (GOOG-NASDAQ) could have acquired to ramp up its Blogspot, Google Checkout, Google Base, and the like.  Yahoo! (YHOO-NASDAQ) could have rolled it into its business services, 360, and more.  eBay (EBAY-NASDAQ) could have rolled it up for hosting, think e-commerce, Skype, automatic-buy and auto-auction links and the like.  VeriSign (VRSN-NASDAQ) could have rolled it up into the Network Solutions unit and even Amazon.com (AMZN-NASDAQ) could have used it for part of its e-commerce gateway and sales platform.  GoDaddy.com or a Register.com could have easily absorbed it, as could have Hellman & Friedman or others.  None of that matters now, and this is so small now that it probably won’t make much on headlines.

This was the sort of BAIT SHOP target we had looked for and the stock was under $2.00 at the time.  These are getting harder and harder to find, although we still have targets that are incrementally valuable such as this.  I had taked to a couple of San Francisco-based hedge funds about taking stakes in June 2006, and their thoughts were both that it was too small to matter.  We have several other smaller companies like this now that would be great incremental add-ons for much larger players, although they are micro-cap web stocks and eitherhave no stock options available for hedging or are too expensive to hedge.  Our buyouts and mergers newsletter 24/7 Wall St. "Special Situation Investing Newsletter" covers these, although these are probably worth revisiting in light of today’s reaction to the merger.   

This new company will have to the tune of 234,000 paid subscribers and more than $117 million in annualized revenues.  Unfortunately, Web.com has been seeing a steady drop-off and the value is not what it was.  This is one that I had removed from the BAIT SHOP last year as it became more expensive than what it looked worth and after it had exceeded the $5.50 mark. 

HERE ARE THE BUYOUT TERMS (unanimously approved by both boards of directors): Web.com shareholders may elect to receive for every Web.com share either 0.6875 shares of Website Pros stock or $6.5233 in cash, subject to proration so that the total cash paid shall equal $25 million. In the aggregate, Website Pros will issue approximately 9 million shares of Website Pros stock and pay $25 million in cash. Based on the closing price of Website Pros’ stock on June 26, 2007, the transaction is valued at an aggregate purchase price of approximately $129 million.

Jon C. Ogg
June 27, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.