Conversant Inc. (CNVR) erstwhile ValueClick recently announced that it will be acquired by Alliance Data Systems Corp. (ADS) for $2.3 billion. Post the announcement, shares of Conversant jumped 30.3% ($8.09) and hit a new 52-week high of $35.17 on Sep 12, 2014.
The purchase price translates to $35 per Conversant share, which is 34% premium to the 30-day average closing price of the company’s stock. The deal is expected to close by the end of 2014 subject to the fulfillment of certain regulatory approvals and closing conditions.
The total consideration comprises 48% in cash and 52% in shares, which values Conversant’s shares at 10 times its 2015 adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $230 million. Post acquisition, Conversant stockholders are expected to own 7% of the combined company, with the remaining 93% to be owned by Alliance Data stockholders.
Conversant will be merged into Alliance Data’s Epsilon division, which is a leading provider of multichannel, data-driven technologies and marketing services. Per Alliance Data, the acquisition will enrich its offline and online data set, thereby resulting in more efficient and targeted marketing programs and providing a high value-added, differentiated product offering to customers.
Alliance Data estimates that the combined entity will generate more than $2 billion in revenues and in excess of $0.5 billion as adjusted EBITDA.
We believe that Conversant’s strong product portfolio, ongoing transition toward higher-margin businesses and re-branding in the domestic market will boost Alliance Data’s overall growth in the long run.
However, the aforesaid acquisition has been subject to investigations by certain law firms including the likes of Kirby Mclnerney. The investigation concerns whether Conversant board of directors violated its fiduciary duties by agreeing to the proposed transaction and whether the proposed consideration adequately values the company’s common stock.
Currently, Conversant has a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Baidu (BIDU) and Inuvo (INUV) both carrying Zacks Rank #1 (Strong Buy).
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