It’s been a rocky November for United Online Inc., and it’s set to continue as the Internet firm’s executive salaries are being called into question amid a takeover attempt and a separate effort to toss out the directors.

First, the Woodland Hills company’s chief executive resigned earlier this month, which was followed by a demand to replace the board from an activist shareholder group headed by a prominent Silicon Beach investor.

In the latest dramatic turn, West L.A. finance firm B. Riley Financial Inc., which holds a 7.9 percent stake in the company, offered last week to buy beleaguered United Online for $185 million, or $12.50 a share, a 21 percent premium over the price before the offer.

“The problem is, in its current form, so much of the money goes to pay the management and professionals and the board, that it just makes it too difficult for shareholders to make a profit despite how well the operations do,” said B. Riley Chairman Bryant Riley of the Internet service provider and e-commerce and loyalty program operator.

In a letter to the board and an interview with the Business Journal, Riley criticized United Online’s high corporate overhead as well as the directors’ small stake in the company and lack of strategic direction. B. Riley wants to bring the company in-house, giving its fledgling e-commerce and loyalty brands room to grow without the burden of current corporate expenses.

Last year, the top executives received more than $11.5 million in total compensation. And all but one of the nonemployee directors last year took home more than $200,000.

Riley’s letter said exec compensation totaled more than $160 million over the last decade while United Online’s share price dropped more than 10 percent.

Outgoing United Online Chief Executive Francis Lobo, who joined the company just two years ago from AOL Inc., earned about $4 million in total compensation last year. On Nov. 3, he notified the board he’d be leaving to join New York’s WeWork Inc.

“Our four top corporate guys made less than their CEO last year,” Riley said.

United Online declined to comment for this article.

However, Riley said the business still has attractive assets underneath the corporate bloat.

“The Internet service provider business is a great cash generator and the e-commerce and loyalty business has great upside,” Riley said. “We would invest in that.”

Veteran downtown L.A. investment banker Lloyd Greif thinks Riley might have found United Online too hard to resist due to its low valuation compared with earnings, book value and high amount of cash on hand.

“I won’t call it a no-brainer,” Greif said, “But on the surface, the odds are in his favor to make it pay off.”

Shopping mood

Originally forged out of a 2001 merger between Internet access providers NetZero Inc. and Juno Online Services Inc., United Online still sells dial-up services but has branched out into mobile broadband and DSL, and has diversified with social media brands such as European networking site StayFriends and e-commerce-loyalty sites such as MyPoints.

The firm bought florist FTD Group Inc. in 2008, but spun it off in 2013 after finding its holdings a bit too diverse. United Online also unloaded its social media site this summer for $30 million, far below its 2004 price tag of $100 million. It has announced plans to ditch StayFriends as well.

Part of what’s mobilized both B. Riley and the activist investor group, Concerned Stockholders of United Online, is the company’s desire to go shopping once more.

In a Nov. 3 quarterly earnings release, United Online disclosed it had hired San Francisco investment banker JMP Group to “explore M&A opportunities in the commerce and loyalty space.”

The next day, former Activision Chairman Howard Marks, who also is the founder of the Silicon Beach tech accelerator StartEngine, announced the formation of Concerned Stockholders. The aim of the group is to replace the board in June at the company’s next annual meeting. The group, which said it owns 4.8 percent of United Online shares, asked current directors to refrain from taking any significant steps such as using cash for purchases or implementing a poison pill until shareholders can vote at that meeting. Marks pointed out that the group collectively owns more United Online stock than the board itself, which holds less than 1 percent, according to April regulatory filings.

The Marks-led group declined to comment for this piece.

“The company looks listless,” said Greif. “Anytime you have such thin insider ownership that’s typically cause for concern and should give you pause as an investor because the insiders don’t believe in the company enough to have a meaningful stake.”

Plus, Internet service provider NetZero is “not the business it was a decade ago,” Greif said.

While B. Riley is offering a 21 percent premium, Greif noted the normal range these days is 20 percent to 40 percent, putting the firm’s offer at the lower end.

“I think this is an opportunistic buy,” Greif said regarding Riley’s interest. “It’s a larger deal than he’s done in the past and there’s some risk associated with it.”

For his part, Riley insists that his firm could make a better stab at growing United Online by handling it as B. Riley treated its own merger last year with Woodland Hills liquidator Great American Group.

“I’m not in this to make half a point, I’m in it to buy the company because we think that there’s really good people and good assets and shareholders have been penalized by the corporate expense,” Riley said, noting he doesn’t want to cut costs in the business units themselves. “We think we can do meaningfully better.”

B. Riley would give United Online the purchase price in cash, taking about $50 million from its own reserves and financing the balance. Riley noted that much of the financing could be paid back with United Online’s $100 million in cash once the deal closed.

The finance firm has offered to allow United Online a “go-shop” period to see if a higher bid emerges – an outcome Riley said he’d be happy with given his firm’s large stake.

“If others say, ‘Boy, this is worth $215 million,’ have at it,” he said.

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