With a less-than-rosy outlook for the future of dial-up Internet, United Online Inc. is pursuing an unexpected business opportunity: flowers.
The Woodland Hills-based low-cost Internet provider plans to acquire FTD Group Inc., a leading flower-delivery company, for $806 million in cash, stock and debt.
The move last week had some analysts scratching their heads, but the company is betting on demographics and cross-promotion: The age, gender and economic status of flower-buyers are similar to those who use Classmates.com, a United Online social networking site with 50 million registered users.
Since only 10 percent of flower sales are completed online, executives said they see huge untapped potential.
“The demographic profile of the FTD customer is almost identical to ours,” said Mark Goldston, chief executive of United Online. “We can reach out to them through advertising, marketing and the massive amounts of e-mails we send out in the normal course of our Classmates business. Much of the flower business is image marketing we really know how to do that.”
The acquisition puts United Online in direct competition with other online flower-delivery companies, including Teleflora, a privately held company owned by Roll International Corp. that has seen big growth over the past several years. Roll is owned by Los Angeles billionaires Stewart and Lynda Resnick.
Under the deal, expected to close in the third quarter, United Online will pay $456 million and assume almost $300 million of debt to acquire Downers Grove, Ill.-based FTD. At $15.08 per share, the offering price represented a 12 percent premium on FTD’s closing stock price the day before the acquisition was announced.
The acquisition will give United Online pro-forma revenues of $1.1 billion, more than double the $513 million it recorded in 2007. The FTD purchase will shrink dial-up to just 26 percent of United Online’s business, down from 60 percent.
United Online, which owns Internet providers NetZero and Juno, has been looking to diversify its business away from dial-up as subscribers abandon it for high-speed DSL providers.
Dial-up still has a solid customer base, with about 15 million mostly low-income or rural subscribers, and throws off lots of cash. But as that business continues to shrink, United Online has pursued alternative ventures that executives believe complement the company’s core competencies.
In addition to Classmates, the company in 2006 bought MyPoints, a consumer products promotion Web site.
Youssef Squali, an analyst with Jefferies & Co. Inc., released a research report last week saying the company is smart to move away from the “melting ice cube” of dial-up subscribers. The acquisition, he added, will give the company enough scale and diversity to effectively cross-promote its brands.
“Considering the large established base that (United Online) has across Classmates and MyPoints, the opportunity to cross-sell and up-sell is real,” he wrote.
Staff reporter Booyeon Lee contributed to this article.
