If you bought FlashNet Communications (Nasdaq: FLAS) at its IPO peak in March, you are not happy right now even with news that Prodigy Communications Corp. (Nasdaq: PRGY) is buying FlashNet.
In a move to boost its infrastructure and subscriber base, Prodigy said Monday it would buy FlashNet, an Internet service provider that went public in March and is 42 percent below its IPO price.
Takeover news is usually good for shareholders of the company that's being acquired. Not in this case. Under the terms of the stock-swap deal, Prodigy will will issue 0.35 shares of Prodigy common stock for each share of FlashNet. Based on Prodigy's current share price, it appears that Prodigy is valuing FlashNet at $8.75 a share, below its current trading price of 10 and well below its offering price of 17.
It was a short, but volatile run for FlashNet (chart), which jumped more than 120 percent in its first day of trading. The stock had a 52-week high of 51 1/2, plunged to 6 and currently trades at 10.
Prodigy went public in February priced at $15 and has had respectable performance (chart), growing via acquisitions.
FlashNet sold itself to investors with the hope that it could distinguish itself from the ISP pack. The company's plan was to undercut ISPs such as EarthLink (Nasdaq: ELNK) and MindSpring (Nasdaq: MSPG) on price and use multilevel marketing to grow. EarthLink and Mindspring merged to take on America Online (NYSE: AOL).
Prodigy's acquisition of FlashNet will boost its subscriber base by 244,000 and puts Prodigy over the 1.5 million subscriber mark including the acquisition of small business web hosting company, BizOnThe.Net.
On the infrastructure side, Prodigy acquires 182 local points of presence (POPs) and FlashNet's customer service center.
Prodigy said it didn't need shareholder approval, but FlashNet shareholders have to vote on the deal. FlashNet said it had "a significant percentage" of shareholders on board.
The deal is expected to close in the first quarter. Prodigy will issue nearly 5 million shares to finance the deal. The new shares will become 7 percent of Prodigy's outstanding shares.
FlashNet is expected to report its third quarter earnings Nov. 11. In the second quarter, the company reported revenue of $9.5 million and a loss of $6.2 million, or 45 cents a share.