Job Slump Depresses Monster.com Value
Monster Worldwide Inc. (MWW), the subject of at least 20 takeover rumors in the past five years, may finally be cheap enough to lure a private equity buyer.
The world’s largest online-recruiting company has plunged 66 percent this year, the most (SPX) in the Standard & Poor’s 500 Index, as American businesses remained reluctant to hire. New York-based Monster is now trading at a 7 percent discount to sales, cheaper than 90 percent of U.S. Internet software and services companies, according to data compiled by Bloomberg. It’s also generating twice as much cash relative to its share price as the industry median, the data show.
Monster is being removed from the S&P 500 after losing almost $5 billion in market value in the last five years as LinkedIn Corp. emerged as a recruiting competitor and the U.S. unemployment rate reached 10 percent. While data compiled by Bloomberg show that Monster has been cited as a potential takeover target since at least 2006, the company’s current capitalization of about $1 billion and cash holdings that exceed debt may now attract a leveraged buyout, according to Avondale Partners LLC. A deal may fetch at least $15 a share, an 88 percent premium to last week’s closing price, said shareholder Penn Capital Management Co.
“The valuation is absurdly cheap,” Eric Green, a Philadelphia-based fund manager at Penn Capital, said in a phone interview. “Because of the capital structure, it would be a great LBO candidate. There’s huge, huge upside to this company when we start to see a real bite out of the unemployment rate.”
Penn Capital oversees about $6 billion and owned about 3.2 million shares of Monster as of Sept. 30.
Kelly Sullivan, an outside spokeswoman for Monster from the public-relations firm Joele Frank, Wilkinson Brimmer Katcher, declined to comment on takeover speculation.
While the S&P 500 fell less than 1 percent this year through Dec. 9, the 66 percent drop in Monster’s shares has wiped out $2 billion in market value. The company’s capitalization was $5.8 billion in December 2006.
Monster gained 1 percent to $8.05 today, the only stock to rise among 75 information technology (S5INFT) companies in the S&P 500.
After reporting a $32 million loss in 2010, Monster has forecast profit ranges with a midpoint that fell short of analysts’ estimates four quarters in a row while businesses held off on hiring as the U.S.’s recovery from the longest recession since the Great Depression deteriorated and Europe’s sovereign debt crisis deepened.
The company, which generated about 58 percent of its $914 million in sales last year in the U.S., charges employers to post job advertisements and to search resumes on its sites such as Monster.com. About a quarter of Monster’s revenue comes from services that directly compete with LinkedIn and other social networks, Jim Janesky, a Philadelphia-based analyst with Avondale, wrote in a Nov. 28 note to clients.
LinkedIn, the Mountain View, California-based company that runs a social network for professionals that includes job postings and recruiting tools, sold shares to the public in May, valuing the company at $4.25 billion. Its market value has since climbed to $7.1 billion as of Dec. 9, seven times more than Monster’s capitalization of $1 billion.
“There’s a fear, right or wrong, that the paradigm is shifting somewhat away from the Monster model,” Douglas Arthur, a New York-based analyst at Evercore Partners Inc., said in a phone interview. “It’s undeniable, the math is what it is --the stock is very cheap.”
Monster was trading at 0.93 times revenue as of last week, lower than 90 percent of U.S. Internet software and services companies with market values greater than $500 million, data compiled by Bloomberg show. At an 18 percent discount to book value, or the value of its assets minus liabilities, it’s also the second cheapest in the group after AOL Inc. (AOL), the data show.
Job openings in the U.S. increased by 225,000 to 3.35 million in September, the most since August 2008, a month before the collapse of Lehman Brothers Holdings Inc. intensified the financial crisis, according to Labor Department data released in November.
The unemployment rate last month unexpectedly fell to 8.6 percent, the lowest in more than two years. Still, the jobless rate, which has been above 8 percent for 34 straight months amid a sluggish recovery, will remain above that level until at least 2013, according to the median forecast of 50 economists surveyed by Bloomberg this month.
‘Significant’ Cash Flow
“When the employment market recovers, we’re going to see Monster’s revenue recover,” Avondale’s Janesky said in a phone interview. “If Monster doesn’t earn the value it deserves in the stock market, then there are various other avenues of recognizing value, and one is certainly a merger or an M&A opportunity.”
A private equity buyer would get a company that has a free cash flow yield of 9.3 percent, compared with the median of 4.5 percent in the U.S. Internet software and services industry, data compiled by Bloomberg show. Monster’s cash of $322 million exceeded debt of $223 million at the end of September for a net cash position that’s also higher than the industry median, the data show.
“Certainly private equity dollars are attracted to companies that have significant free cash flow characteristics and very low valuations,” Janesky said.
While data compiled by Bloomberg show that Monster has been speculated as an acquisition target at least 20 times in the last five years by electronic news services, brokerages or newspapers, the rumors never led to a takeover.
“A case for a deal could be made, but it’s far from a slam dunk,” Mark Marcon, a Milwaukee-based analyst at Robert W. Baird & Co., said in a phone interview. Bidders may be dissuaded because it’s difficult to predict the future cash flows of a business that’s sensitive to swings in the economy and the industry’s rapid technological changes, he said.
Still, a strategic buyer, such as a media company looking to grow its Web presence, may also be interested in acquiring Monster, said Penn Capital’s Green and David Katz, New York- based chief investment officer of Matrix Asset Advisors Inc.
A newspaper company such as Gannett Co. (GCI), the publisher that’s part owner of Monster.com competitor CareerBuilder.com, may look to acquire Monster to further supplement revenue from jobs listings that used to run mainly in newspapers, Green said. Google Inc. (GOOG), which makes most of its money from search advertising, and LinkedIn, which focuses on higher salary job listings, could also take a look at Monster, he said.
Katelin Todhunter-Gerberg, a spokeswoman for Mountain View, California-based Google, and Hani Durzy, a spokesman for LinkedIn, said the companies don’t comment on speculation. Laura Dalton, a spokeswoman for McLean, Virginia-based Gannett, didn’t return a phone call and e-mail seeking comment.
Monster’s management team would be willing sellers at the “right price,” which may be in the “high teens to low $20s,” Matrix’s Katz, whose firm manages $920 million and owned about 1.7 million shares of Monster as of Sept. 30, said in a phone interview.
Penn Capital’s Green said the company would fetch at least $15 a share in a takeover, 88 percent more than the closing price last week and higher than it has traded since July.
“The stock has been a clear disappointment,” said Green, whose firm was Monster’s 10th biggest shareholder as of September. Still, “the free cash flow yield is huge and the business is relatively stable. The job numbers are steadily getting better. I would love to see someone buy it,” he said.