Trouble begets opportunity.
A few months ago, in "Crunching the Data Crunchers," we took a look at the relative valuations of companies in the troubled data-brokering industry. Our hypothesis was that one or more of these companies might have become undervalued because of overreactions in a market spooked by the string of information thefts that have hit ChoicePoint (NYSE: CPS), Reed Elsevier (NYSE: ENL), Retail Ventures (NYSE: RVI) subsidiary DSW (NYSE: DSW), and others in recent months.
If you click on that link above and examine the chart at the bottom, I think you'll agree that one company out of the four practically screams "cheap!" That company is Acxiom (Nasdaq: ACXM), which has been in the news recently less because of its valuation and more because it recently beat rival data broker infoUSA (Nasdaq: IUSA) in a contest to acquire tiny Digital Impact.
It seems that we haven't been the only ones to notice Acxiom's attractive price. Not long after my article ran, an outfit by the name of ValueAct Capital suggested it was interested in buying Acxiom for $23 per share. Hearing no serious objections, ValueAct made its offer official earlier this month. Upon receiving and reviewing the offer, Acxiom's board gave an official reply: "Thanks, but no thanks."
Acxiom's board termed ValueAct's offer "wholly opportunistic and an attempt to capitalize on recent revenue shortfalls." The "shortfall" in question had been announced the day before ValueAct made its formal buyout offer, and Acxiom confirmed this bad news just yesterday (the same day it gave its huffy reply to ValueAct) in its fiscal Q1 2006 earnings report.
Revenues came in at $310 million, which, although a 7% increase over the year-ago numbers, amounted to nearly 5% less than Wall Street had been expecting. Worse, profits declined by 48%, and profits per diluted share by 50%. Ouch.
Given the company's recent weak performance, outside shareholders are clamoring for the board to come to their rescue -- not by improving performance, but by getting out of the way of ValueAct and its offer to pay cash for their shares. Acxiom doesn't seem inclined to accede, however, and I think I know why.
When Acxiom bought Digital Impact, it thought the company -- with $45 million in annual sales -- was fairly priced at about $140 million, or roughly three times sales. Acxiom itself has annual revenues of $1.2 billion, but a market cap just 1.5 times that. So assuming Acxiom feels it paid the right price for Digital Impact, it's not likely to agree to a buyout offer of anything less than three times Acxiom's own sales: $3.6 billion, or roughly $41 a share.
For more Foolish news on the data industry's recent woes, read:
Fool contributor
Rich Smith
has no position in any of the companies mentioned in this article.
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