Primedia and About.com were singing the merger synergy song on Monday, but investors weren't buying it.
In mid-morning trading Monday, shares of Primedia (NYSE: PRM) were off 23 percent to 11.75 and About (Nasdaq: BOUT) was up just about 4 percent to 24.63.
The companies announced a stock swap worth about $690 million based on Friday's Primedia closing price. The deal calls for About shareholders to receive 2.3409 Primedia share for each About share, for a total of 45.2 million Primedia shares. There are no collars on the deal.
The valuation of About seemed to be the big issue. Many analysts have said that About was grossly undervalued relative to its peers. About, which was scheduled to become profitable in the first quarter, ended its third quarter with $133 million in cash.
Meanwhile, Primedia loses money and isn't expected to be profitable in 2001. According to earnings tracking firm First Call Corp., one analyst is projecting a profit in 2002. Primedia, which carries a heavy debt load, ended its latest quarter with $29.7 million in cash.
On a conference call with analysts, Primedia and About said their collection of verticals will enable the company to juice both sales and earnings growth in 2001.
Primedia operates a host of magazines and media properties, including American Baby, Muscle Mustang, New York, Seventeen, and Channel One. About has become a top 10 Web property with its vertical content.
Primedia will be able to grow at least 20 percent in 2001, said Primedia CEO Tom Rogers.
Rogers said the integration of About will transform Primedia into a cross platform niche marketing company. "About is the online parallel of Primedia's offline properties," said Rogers, who has been Primedia's CEO for about a year.
About CEO Scott Kurnit said the merger with Primedia will enable his company to grow faster. The company gains access to Primedia's 1,700-strong sales force. Kurnit noted that targeted marketing accounted for 15 percent of About's sales, but growth was capped by headcount. About has about 100 sales employees.
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