Six months after being spurned, B. Riley Financial Inc. finally got a “yes” from acquisition target United Online Inc. – even after knocking $15 million off the asking price.
The West L.A. finance firm announced last week that it would buy the Woodland Hills internet company for $170 million, 8 percent less than its original bid back in November.
The deal amounts to about $48 million in cash from B. Riley, after taking into account the projected United Online cash balance at closing. The finance firm has launched a $20 million follow-on public offering of common stock to fund part of the purchase price and also anticipates obtaining a senior secured credit facility to cover a portion.
The lower offer reflected the price United Online got for selling rewards site MyPoints for $13 million and social media network StayFriends for about $18.3 million over the past few months, said B. Riley Chairman Bryant Riley. His original bid had baked in higher prices for those assets, which no longer made sense.
“We were focused more on the communications asset,” Riley said of United Online’s remaining internet service provider business, which offers everything from mobile broadband to dial up.
“The costs of being public for a small company can be excessive, whether it’s regulations or the way the company is run,” Riley explained of efficiencies he saw from bringing United Online in-house. “Just given the size, if the company is too small, it’s awfully hard to leverage those expenses.”
His firm, already United Online’s largest shareholder with about a 9.6 percent stake, offered in November to buy the beleaguered company for $185 million, or $12.50 a share, a 21 percent premium over the price before the offer. The internet company today trades around $11 a share.
In the fall, Riley had criticized United Online’s high corporate overhead as well as its directors’ small stake in the company and lack of strategic direction. United Online’s top executives had received more than $11.5 million in total compensation in 2014, and all but one of the nonemployee directors had taken home more than $200,000 that year. Riley also noted at the time that exec compensation totaled more than $160 million over the last decade while United Online’s share price fell more than 10 percent.
Riley’s original offer came at a tempestuous time, immediately after United Online’s then-chief executive, Francis Lobo, had resigned and an activist shareholder group, including Silicon Beach investor Howard Marks, had demanded the company replace its board.
Marks declined to comment, and Carlo Cannell, who heads fellow activist shareholder Cannell Capital of Jackson, Wyo., could not be reached for comment.
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