Zulily Deal, Cheap as AOL’s, Is Lifeline for Investors: Real M&A

Zulily Inc., a high-flying Internet stock just two years ago, now is worth about the same as a beaten-down AOL Inc.

Zulily on Monday agreed to sell itself to Liberty Interactive Corp.’s QVC for about $18.75 a share in cash and stock, or about $2 billion after subtracting net cash. The per-share price is a small fraction of the company’s $72.75 peak, reached in February 2014. The offer values the online purveyor of parenting goods, from burp cloths to maternity wear, at about 1.6 times its sales in the last year.

That’s roughly equal to the multiple that Verizon Communications Inc. paid this year for AOL, which is growing half as quickly as Zulily. Verizon’s $4.4 billion offer was considered low when it was announced in May but probably the best AOL could get.

After unraveling its failed megamerger with Time Warner, AOL transformed itself into a provider of ad-purchasing technology that Verizon could pair with content for mobile devices.

Zulily, on the other hand, has stumbled recently. The company is rejiggering its marketing plan after customer growth slowed and sales missed estimates in some quarters.

Investors Flee

“When you see the growth slow down for these Internet names, investors just head for the hills,” said Paul Sweeney, an analyst at Bloomberg Intelligence. “They’re obviously getting it on the cheap. A lot of Zulily shareholders probably view this as a lifeline.”

Before news of the sale, Zulily shares were down 46 percent this year and trading less than $2 above their all-time low. While Zulily’s revenue has been increasing much faster than AOL’s, the 13 percent growth projected for this year is a far cry from the triple-digit expansion of the retailer’s heyday.

A premium of more than 40 percent is hard to turn down -- even if the purchase price is lower than the $22 that Zulily fetched in its initial public offering in November 2013. Analysts on average predicted the stock on its own would go to just $13.13 over the next year, even amid signs of improvement in the second quarter.

There probably won’t be any counter-bidders, so shareholders likely have their best option in front of them, said Jason Helfstein, an analyst at Oppenheimer & Co.

For investors, QVC’s offer is a “respite from the stock’s underperformance,” Neely Tamminga, an analyst at Piper Jaffray Cos., wrote in a report Monday.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE