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Shareholders claiming to control as much as 40% of Answers.com are spitting nails over management’s agreement to sell the company to AFCV Holdings for $127 million.They say that price deeply undervalues a company that is a top 20 Internet presence with around 100 million global uniques, according to ComScore. It used to be that acquirers would pay close to $20 per unique. Answers.com management is getting $1.20.
A source close to Outboard investments, which owns 9.2% of the company, told us, “There’s not a shot in the world this thing is going through. This is going up for auction or it’s not going down.”
Says a principle: “We got this news this morning with our cornflakes – on Yahoo. The company gave no indication that it was anywhere near making a deal with anybody or that it was even shopping it around.”
“We’re not agreeing to anything at this stage. We’re waiting for the fourth quarter outcome. All we’ve seen is less than bare bones. Our expectation is that on reflection, the board will reconsider and look for significantly higher price.”
Another principle tells us the company mislead shareholders during its Q3 earnings call, when it promised a materially better 2011 and said it would hire a PR firm. He argues that management has done a poor job presenting the company in a reasonable light relative to other public companies. “It’s done a poor job communicating its successes,” says this source.
These shareholders say Answers.com’s valuation should be closer to Demand Media’s ~30X of revenues, rather than the ~10X AFCV Holdings is planning to pay.
These shareholders say Answers.com is selling with ~$30 million in cash it could have used to acquire companies or build a salesforce. They say that Answers.com recently hired former Associated Content CEO Patrick Keane to develop such a salesforce and that Keane was showing early traction and should have been given more time to prove his plan out.
A source close to Answers.com says it’s probably true that the company being “incredibly undervalued” in this deal. This source says reasons management decided to sell for such a low price anyway are:
- Answers.com has a distributed, disorganized workforce: 80% of its people work out of Jerusalem.
- Answers.com revenues, which are 90% dependent on Google ads, took a sizeable hit when Google recently adjusted its search algorithm to fight search spam.
- Management thought about hiring former Associated Content CEO Patrick Keane to full time to run the company, but Keane wouldn’t do it for less than a 6% stake.
We’ve reached out to Answers.com management for comment and will update with any reply.