Perion With Conduit Seen Besting AOL in U.S. Searches

Perion Network Ltd., the Israeli maker of Internet tools set for the longest stretch of quarterly gains on record, will surpass AOL Inc. in the U.S. search market after a reverse merger with a unit of Conduit Ltd., Chief Executive Officer Josef Mandelbaum said.

“We’re going to have 2 percent of U.S. searches and be bigger than AOL,” Mandelbaum said in an interview with Bloomberg Television in Tel Aviv yesterday. It’s “certainly possible” that Perion achieves $1 billion in sales in the next three to five years.

Shares of Perion in Tel Aviv gained 1 percent to 41.23 shekels at 10:37 a.m. local time. The stock in New York tumbled 11 percent yesterday on concern that the transaction will dilute minority shareholders, according to Chardan Capital Markets LLC. Even after the drop, the stock still trades at a 0.7 percent premium to the Tel Aviv shares.

Perion, based in Tel Aviv, is pursuing partnerships to diversify its revenue sources after Google Inc. halted automatic software downloads on Feb. 1. The Israeli company said yesterday it agreed to merge with Conduit’s Client Connect business in an all-stock deal. The combined company would be the fifth-largest in the U.S. search market and overtake New York-based AOL, which had a 1.3 percent stake in August, according to digital-media data tracker ComScore Inc.

Spin Off

Conduit will spin off its Client Connect business, which will be combined with Perion, and the deal is subject to approval by Perion’s shareholders in a November vote and customary regulatory and tax rulings, the companies said. A reverse merger is a deal that involves a private firm purchasing a public company to gain a listing.

Perion will issue to Conduit shareholders as many as 60 million shares and the deal is scheduled to close in January, the companies said. After the transaction is closed, Perion will be owned 81 percent by the existing Conduit shareholders and option holders and 19 percent by existing Perion shareholders and option holders, they said.

“The merger is dilutive to existing shareholders, driving the stock down,” Jay Srivatsa, analyst at Chardan Capital Markets LLC said by phone yesterday. “Once the dust settles, it could be a positive.”

Mandelbaum, who will be the CEO of the combined organization, said the company will look for future acquisitions and didn’t rule out fundraising.

Perion sank to $11.74 in New York yesterday, after the shares dropped 15 percent to 40.83 shekels, or $11.55, in Tel Aviv.

“You really judge us on the next year, not today,” Mandelbaum said, referring to the drop on the stock price yesterday. “In a year from now, let’s see what happens.”

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