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FindWhat renegotiates eSpotting merger

The search company says it's talking through its merger with Espotting after discovering that the U.K. company's finances were overstated. FindWhat shares drop more than 19 percent.

Commercial search company FindWhat.com said Friday that it is renegotiating its merger with U.K.-based Espotting after discovering that the company's finances were overstated.

Shares in Fort Myers, Fla.-based FindWhat.com, which sells placement in Web search results to advertisers, dropped more than 19 percent on the Nasdaq to $21.79 after the news.

FindWhat proposed in mid-June to buy privately held Espotting for about $163 million in cash and stock. The combined entity, FindWhat said, would generate more than $140 million in revenue in 2003, with a sales growth of 30 percent to 40 percent expected in 2004. But after examining Espotting's historical and projected financial performance, FindWhat said that it must retract its projections, including statements of Espotting's profitability and pro forma financial expectations.

"FindWhat.com continues to work with Espotting in reviewing Espotting's historical financial results and in conforming Espotting's historical financial results to U.S. GAAP (Generally Accepted Accounting Principles). The parties are reserving their rights under the existing merger agreement, and, depending on the outcome of the review of Espotting's financial performance, the parties may negotiate to modify the terms of the transaction," according to a statement from FindWhat.

The renegotiation talks could result in a lower purchase price or a dissolution of the merger agreement, the company said.

FindWhat also reiterated its full-year guidance. In July, the company reported that its second-quarter revenue rose 80 percent compared with the previous year. It reported a net income of $2.7 million, or 12 cents per share, on revenue of $17.5 million for the second quarter. For the full year, it expects to bring in revenue of $70 million, or 48 cents per share, up from estimates of $67.5 million in sales previously.

Early this month, the company said it plans to acquire Miva, an e-commerce software company, for $5.5 million in cash and stock. FindWhat also will assume about $2.5 million in debt. The company expects the acquisition to close by the end of the year. The deal hands FindWhat a relationship with Miva's 70,000 small-business customers and allows it to better target promotions for those businesses online.

Miva, a privately held company, recorded a net loss of about $0.8 million on revenue of $2.6 million in 2002, according to unaudited internal financial statements of the company. In the first six months of 2003, it recorded a net loss of $0.4 million on $1 million in revenue. FindWhat said that the purchase will not have a material impact on its earnings per share in 2003 or 2004.