In late August of 2012, Woodland Hills, California-based e-commerce company United Online, Inc. (NASDAQ:UNTD) announced its intention to spin off its FTD floral-shipping business into a standalone public company. The FTD division currently accounts for 65 percent of United Online's gross revenues and could have an initial enterprise value of $500 million or more. As such, this offer appears to provide an excellent opportunity for ambitious United Online investors who wish to maintain a stake in the emergent company. Barring any unforeseen regulatory or legal delays, the tax-free transaction should be completed by August of 2013.
About United Online, Inc. (NASDAQ:UNTD)
United Online is a diversified e-commerce company that provides several different consumer-focused services within the space. The company's FTD division offers bath products, gift baskets, specialty food products, novelty clothing and stuffed animals in addition to its core flower-delivery business. Once it has been spun off, FTD appears poised to increase the reach of its already-robust network of florists and increase its delivery range in places like the United Kingdom, continental Europe and Southeast Asia.
United Online's "content and media" division manages a number of different niche brands that focus primarily on selling mementos like class rings, yearbooks, letter jackets and other products. This division also operates an interactive yearbook database through an emergent social media property known as "SchoolFeed." United Online's "communications" division operates several Internet connectivity businesses and maintains a significant stake in the shrinking dial-up and DSL markets. The company's "communications" properties include NetZero and Juno. As a whole, United Online employs about 1,500 people and earned $36.6 million on $869.8 million in revenues in 2012.
How the deal is structured
Under the terms of the spin-off, United Online shareholders will receive one share of FTD for every United Online share in their portfolios. The exact pricing of this offer has not yet been announced. However, it appears that the two companies will have an identical float in the aftermath of the spin-off. While FTD's listing application is still pending, it is reasonable to assume that the company will trade under the "FTD" ticker symbol.
The pending spin-off has already produced sizable returns for United Online's shareholders. On the last trading day before the late-July spin-off announcement, the company's stock closed at $4.20 per share. On the day after the announcement, the stock gained exactly $1 per share and closed at $5.20 per share. Since then, it has followed a steady upward trajectory and is currently valued at more than $6.50 per share. This equates to a six-month return of approximately 55 percent.
Potential complications and drawbacks
At this point, there appears to be little standing in the way of this spin-off. It has already been approved by United Online's board of directors and should sail through the shareholder-vote process with little trouble. In addition, the small size of the deal and the competitiveness of the industry in which United Online and FTD operate will limit the regulatory scrutiny that this spin-off receives. Barring any last-minute legal action, the deal appears likely to come off without a hitch.