Idearc CEO: InfoSpace acquisition will add profit
Idearc Inc. (NYSE: IAR) CEO Kathy Harless said its acquisition of InfoSpace, Inc.’s (Nasdaq: INSP) online directory properties will add profitable revenue, enhance local search offerings and have no impact on the business directory publisher’s dividend program. Harless made the remarks during a midday conference call.
InfoSpace announced before the opening bell that its board of directors approved the sale of its online directory business to Idearc for $225 million in cash. The deal includes Switchboard.com, Local.Infospace.com and FindIt, Infospace’s cell phone search service. The acquisition was funded through cash and Idearc’s existing credit facility, Harless said.
“Acquiring Switchboard.com is absolutely consistent with the strategy we’ve been telling you over the past several months,” Harless said during the call. “To be successful in local Internet search, we must have strength in three distinct components: content, technology and distribution. This deal provides advantages in all of these areas.”
The deal adds profitable revenue, she said, and once the deal closes, Idearc will be able to charge performance-based advertisers higher fees. All of the Texas-based company’s fixed-fee advertisers are expected to be charged the new rates by 2009, she said. YellowPages.com, one of the firm’s significant clients, will be charged the new rates shortly after the deal closes. The acquisition is expected to finalize in 30 to 60 days, according to a press release.
Through the acquisition, Harless said the deal will “significantly enhance” Idearc’s competitive position. The properties acquired through the acquisition had 7.7 million unique visitors during August, Harless said. That compares with Idearc’s 21.3 million unique visitors during the same time period for its Superpages.com network.
“This enhances our position as one of the strongest local search providers in the marketplace,” she said.
Finally, she said the acquisition “fits well within our stated capital allocation program and it will have absolutely no impact on our current dividend program.” Harless said Idearc’s free cash flow will go toward paying stockholder dividend, repaying debt and investing back into the company.
Andrew Coticchio, Idearc’s chief financial officer, said the deal is estimated to deliver annual operating income in the $25 million range, once integration is complete. He also said the company expects revenue in the $40 million range from the acquisition.
“The acquisition is expected to be cash flow accretive in the first year following the transaction,” Coticchio said.
Margins from the added segments will be higher than its core business but the company thinks it’s premature to update long-term financial projections, the CFO said.
The acquisition will have no impact on Idearc’s relationships with Microsoft Corp.’s (Nasdaq: MSFT) MSN search engine, Google Inc. (Nasdaq: GOOG) and Yahoo! Inc. (Nasdaq: YHOO). Eric Chandler, president of Idearc’s Internet division, said Switchboard.com only drives about 5% of traffic through paid search engine marketing. The website’s traffic comes predominantly through direct hits and search engine optimization, he said.
Coticchio said about one-half of Idearc’s advertisers should be under new agreements during 2008. By 2009, all of the advertisers should be charged new rates that reflect the Infospace acquisition, he said.
During midday trading, shares of Infospace are surging 27.02%, or $3.59, at $16.84. Idearc shares are down 1.05%, or $0.35, at $33.
