Angie's List Inc rejected IACInterActiveCorp's $8.75 per share offer this morning. Strictly speaking, it's not a definitive rejection, but more of a holding pattern. Indeed, Angie's List board wants the opportunity to evaluate its own management's "Profitable Growth Plan" (not a very original name, but at least the goal is clear).
Angie's List CEO Scott Durchslag, who was appointed in September, is in the process of developing this plan and expects to unveil it to shareholders during next quarter's Investor Day.
In a letter to IAC CEO Joey Levin, Durchslag suggests that evaluating the buyout offer would amount to a "rush to judgement," before adding that "once our Profitable Growth Plan is completed and our shareholders informed, we will of course consider any value enhancing alternative to the plan, including a transaction with IAC."
Angie's List has struggled since it went public in Nov. 2011 at $13 per share. In fact, in a selected group of 11 Internet companies collated by the Financial Times that went public in 2011 and 2012, only two stocks performed worse from the date of their launch (stillbirths Groupon (-75%) and Zynga (-84%)).
With an equivalent loss of "only" 35%, Angie's List is not in that category, but the comparison with its closest peer Yelp Inc, which has returned 78%, is telling.
Consistent, profitable growth is vital for Angie's List – or a clear, credible path leading there, at the very least. In the four years since it went public, the company has had just four profitable quarters on a GAAP basis. The consensus estimate for 2016 calls for a profit of $0.30 per share ($0.48 on an adjusted basis).
Durchslag started as CEO in September and was first approached by IACInterActiveCorp the following month: He's certainly been thrown into the deep end.
In his response to IAC, he pointed out that the interests of the Angie's List board and management "are aligned with all Angie's List shareholders, as together we own more than 20% of the Company's outstanding shares."
There is no question that level of ownership serves to align Angie's List insiders' interest with shareholders', and it's an attribute of superior businesses that Foolish investors look for. However, that does not mean Angie's List insiders are not subject to other motivations, including the desire to remain independent, to remain employed, or simply to protect one's ego.
In the face of what looks like an honest proposal from IAC, Angie's List ought to bring forward the calendar for developing and communicating the Profitable Growth Plan. Beyond the straight $8.75 per share offer, IAC has also said it would consider a stock-for-stock deal that would combine IAC and IAC's HomeAdvisors business. In that regard, Angie's List already has a plan that makes strategic sense in front of it (although the terms would need to be fleshed out).
Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool recommends Yelp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.