Bankrate Inc., which has agreed to be bought by private equity firm
On Wednesday, Apax Partners offered to pay $28.50 per share in cash, a 16 percent premium over the financial information-based Web sites operator’s Tuesday closing price.
However, the company’s stock closed up 15 cents above the offer price on Wednesday, and rose a further 20 cents to $28.85 Thursday as investors saw the possibility of a higher bid.
Analysts said a higher bid was unlikely for the company, which might not return to profitability for at least the next few quarters as a slump in advertising revenue weighs.
A $30 million termination fee, a gloomy second quarter and a poor outlook for the rest of the year could all tend to scare off potential bidders, Stifel Nicolaus analyst George Askew said.
The North Palm Beach, Fla.-based company said second-quarter profit declined by a larger-than-expected 53 percent, and that second-quarter and full-year revenue will be well below analyst forecasts.
The company’s management, which accepted the Apax Partners’s offer, would have an important managerial role and a meaningful equity interest in the privately held Bankrate on completion of the deal, the analyst said.
Bankrate said London-based Apax Partners would provide 100 percent financing for the acquisition from its equity funds under management, deviating from the normal practice of raising funds through debt.
“Apax [Partners] is fully financing the acquisition, meaning there is no financing contingency, something few financial or strategic buyers would match,” Askew said.
Debt funding for buyouts has dried up in the wake of the credit crisis, leading many large European and U.S. buyout houses to consider PIPEs — private investment in public equity — as a means of putting their $1 trillion cash pile to work.
A HIGH PREMIUM?
The premium, which at 16 percent looks low for a market leader, would have been a lot higher had the company posted second-quarter results before the deal was announced, analysts said.
“Although a 15.8 percent premium to Tuesday’s closing price seems small, had second-quarter results been disseminated prior to this announcement, we believe the stock would have fallen to the $15-$16 level, implying that Apax’s $28.50 offer would have been at a 78 to 90 percent premium,” JMP Securities analyst Sameet Sinha said.
Although it was a low offer price for a “best-of-breed” property, Sinha said he believes the company shopped itself around and took the best offer it could get, which makes competing bids less likely.
Credit Suisse analyst John Blackledge said although he is cautious on the company’s business prospects in the near term, he does not see any real issues longer term and believes that selling at depressed levels may not necessarily be the best solution.
“If Bankrate’s business were to be weak for an extended period of time, the market could penalize share prices negatively and the value Bankrate is getting for the acquisition at current levels may make some sense,” the analyst said.
RBC Capital Markets analyst Ross Sandler pointed to Yahoo Inc.’s experience with Microsoft Corp., which withdrew its $47.5 billion buyout offer last May after Yahoo’s board rejected the bid as too low.
Yahoo stock, which had traded as high as $30.25 in February last year, fell to single digits toward the end of 2008.
“The specter of Yahoo’s failed takeout will serve as a reminder to many Internet investors that a ‘bird in the hand’ is often better than none at all,” Sandler said.
POSSIBLE, BUT IMPROBABLE BIDDERS
Collins Stewart analyst Sandeep Aggarwal, however, said Yahoo and media company News Corp. could be two other bidders with significant exposure to the financial vertical.
“We believe that Chief Executive (Carol) Bartz at Yahoo has been placing increasingly more emphasis on display advertising. With Bankrate, Yahoo Finance can significantly improve its RPM (revenue per thousand page views).”
However, Credit Suisse’s Blackledge said given a new management team, Yahoo is focused on larger issues than bolstering its personal finance vertical.
Analyst Aggarwal said given a nice Internet playbook with assets such as MySpace and Dow Jones, News Corp could also bid for Bankrate.
Yahoo spokeswoman Kim Rubey said the company does not comment on rumors and speculation. News Corp declined to comment.
Blackledge said other potential suitors like AOL, currently a part of Time Warner Inc., and IAC/Interactive Corp. are also unlikely to bid for Bankrate in the current scenario. AOL Chief Executive Tim Armstrong denied any interest.
(Reporting by Anurag Kotoky in Bangalore; additional reporting by Robert MacMillan in New York, Alexei Oreskovic in San Francisco and Edwin Chan in Los Angeles; Editing by Deepak Kannan)