Terms of the deal have Web.com shareholders going out at either $6.5233 per share in cash or 0.6875 shares of freshly minted Website Pros stock.
An important stipulation here is that no more than $25 million will be paid in cash. This is a $129 million deal, so the bulk of the proceeds will be in Website Pros stock, which fell 5% lower to $9.47 on the news, valuing the pro-rated stake in the acquirer's stock at slightly less than the cash takeout. If Website Pros shares keep dropping over the next few days, it will become increasingly difficult to get most of your shares cashed out.
Two heads are better than one
Even if I'm in the minority, I like the deal. Web.com wasn't getting far on its own. Unlike most dot-com survivors, the website enabler remained a profitless concern. Revenue was inching higher quarterly on respectable subscriber growth, but the actual top-line spurts were pretty measly.
Even last month, when the company posted a rare profit on a 6% uptick in net revenues, it was a facade. Favorable accounting gains masked yet another operating loss in the company's disappointing tenure as a public company. There was little reason to believe that the company would shed its money-losing ways anytime soon.
Website Pros is no gazelle, but at least it's consistently profitable. Earnings dipped this past quarter, but that, too, is a facade. The company still had tax-loss carry-forwards to offset Uncle Sam's bite last year. Pre-tax profits this time around actually climbed 17% higher.
Revenues soared 41% higher year over year during those three months, but don't get too excited. The octane isn't all organic -- 14,000 of the 74,000 corporate subscribers that the company watched over at the start of the year came through a series of acquisitions that were completed throughout 2006.
Web.com is just another trophy for Website Pros' glass case, but it's a good one. Website Pros helps small and medium businesses establish an online presence. It also helps generate local sales leads through Leads.com, managing contextual marketing campaigns across sites such as Google (Nasdaq: GOOG ) , AOL, and Yahoo! (Nasdaq: YHOO ) .
Sure, it's easy to cut out the middleman. It keeps getting easier and cheaper to establish a Web presence. The search-engine giants also have great automated systems in place to manage campaigns for local leads. However, one-stop shops such as Website Pros and aQuantive (Nasdaq: AQNT ) make navigating the thinning minefield more efficient.
Together, Web.com and Website Pros will be a force, with 234,000 paid subscribers and $117 million in annualized revenue. There will be economies of scale realized in areas where there is overlap. And there will be opportunities to cross-market services in areas that don't overlap.
Assuming that Website Pros has the secret sauce to turn the Web.com business profitable, it's all too easy to like the deal's potential.
The unlikely suitor
Website Pros and Web.com belong together. They do. The real head-scratcher here is why some of the bigger dot-com players didn't cut in first. Yahoo! actively recruits small businesses through domain-registration and hosting services. A company like Web-based enterprise-software provider Salesforce.com (NYSE: CRM ) carves a cozy living catering to the app needs of small companies. The Web.com roster would be a gold mine in Salesforce's sticky hands.
Google seems to have its hands full with recent big-ticket purchases, but it would be nice to see the company diversify. 99% of its revenue comes from online advertising, though its recent emphasis on local search makes a Web.com a natural.
The big guns didn't come, though. Maybe they are simply playing a waiting game. Once Website Pros seals the deal, a Yahoo! or Salesforce can just swallow them both at the same time. There's less fuss that way.
For now, we'll have to settle for two small fish teaming up in a deep blue ocean overflowing with sharks.
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Longtime Fool contributor Rick Munarriz doesn't mind small-fry fishing, though he practices catch-and-release. He does not own share in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.