Monster Deal Talk Showing 80% Premium With $15 a Share: Real M&A
Monster Worldwide Inc. (MWW), the online recruiting service that has lost almost 90 percent of its value, is poised to extract a record takeover premium for investors.
Chief Executive Officer Salvatore Iannuzzi said last week he is weighing options to boost the company’s shares after Monster traded as low as 0.67 times the value of its net assets. Even after the hiring of bankers helped spur a 20 percent gain in its stock price, the $1 billion company was still cheaper yesterday relative to its earnings and book value than at least 96 percent of U.S. Internet software and services firms greater than $500 million, according to data compiled by Bloomberg.
The world’s largest Internet jobs board, valued at more than $7.5 billion in 2006 before U.S. unemployment reached 10 percent and LinkedIn Corp. (LNKD) emerged as an alternative, could still fetch as much as $15 a share in a takeover by a competitor, said Matrix Asset Advisors Inc. Buyers would be paying an 80 percent premium -- the highest ever among similar-sized deals in the human resources and e-commerce services industries -- to get a hold of the New York-based company’s 23 percent international sales growth last year from operations in more than 50 countries.
“It should wrest a high premium,” David Katz, chief investment officer at New York-based Matrix, which oversees about $935 million and owned Monster shares as of February, said in a telephone interview. Acquirers would still be “getting it at a steal. It’s got a reasonable likelihood of happening because you can pay a nice premium and still everybody comes out having done well,” he said.
Andi Rose, a spokeswoman for Monster from the public- relations firm Joele Frank, Wilkinson Brimmer Katcher, declined to comment on whether the company has been approached by a potential buyer and at what price it would be willing to sell itself.
Shares of Monster rose 3.4 percent to $8.61 today, the highest closing price since Jan. 25.
Monster said this week it hired Stone Key Partners LLC and Bank of America Corp.’s Merrill Lynch to review “strategic alternatives” following an almost six-year slide in its shares that handed investors losses of about 86 percent. The company, which charges employers to post job advertisements and to search resumes on its sites such as Monster.com, has been hurt amid a tepid hiring environment in the U.S. and the emergence of competition from social-networking sites such as LinkedIn, which threaten its market share.
“Our shareholders deserve a better return,” he said.
After losing money in 2010, Monster posted profit in 2011 that fell short of its initial projections. The company missed estimates again in January when it said first-quarter earnings will be break-even to 4 cents a share, less than the 9-cent average of analysts’ estimates compiled by Bloomberg at the time.
Three days before Iannuzzi’s comments, Monster was trading at a 33 percent discount to the value of its assets minus liabilities, the company’s lowest price-to-book value on record, data compiled by Bloomberg show.
Even after the stock’s 20 percent gain since Iannuzzi announced he was exploring options, Monster still traded yesterday at only 0.84 times book value, the second-cheapest of 33 U.S. Internet software and services firms with market values of more than $500 million, data compiled by Bloomberg show. AOL Inc. (AOL) was the least expensive at 0.74 times. Monster’s price-to- earnings ratio of 13 was also lower than every company in the industry except for J2 Global Inc. (JCOM) at 12 times, the data show.
Monster is trading at “a discount to virtually anybody else in the marketplace,” Douglas Arthur, an analyst with Evercore Partners Inc. in New York, said in a phone interview. “Once you’ve announced that you’ve retained investment banks to assist in a strategic review, all cards are on the table, including an outright sale of the business. From the market’s point of view, I think anything short of that would be a disappointment.”
A strategic buyer may pay $14 a share to $15 a share, said Matrix’s Katz, valuing the company’s equity at as much as $1.85 billion. At 80 percent more than Monster’s closing price of $8.33 yesterday, it would top the 53 percent premium Randstad Holding NV (RAND) offered for Vedior NV in 2007 as the most expensive for a human resources or e-commerce services takeover greater than $1 billion, according to data compiled by Bloomberg that dates back to 1996. The average is 21 percent, the data show.
Monster would need to fetch at least $12.79 a share in an acquisition to exceed the prior record of 53 percent. A private equity buyer would be willing to pay closer to $12 to $12.50 a share for Monster, Katz said, equating to as much as a 50 percent premium.
While Tobey Sommer, an analyst at SunTrust Robinson Humphrey Inc. in Nashville, Tennessee, says a “broad range of acquirers” could financially justify paying $11 to $12 a share, the price of a deal and level of interest will be based, in part, on expectations for the U.S. unemployment rate this year and its effect on Monster’s earnings.
Even at $15 a share, Monster would be valued at less than the average of publicly traded peers relative to book value and earnings in the last 12 months, the data show.
Monster was speculated as an acquisition target at least 20 times in the five years through December 2011 by electronic news services, brokerages or newspapers, data compiled by Bloomberg shows. Still, the rumors never presaged an actual transaction.
“While we think that there are a list of potential buyers, including private equity, we don’t see anything imminent considering the company is going through a period where its growth trajectory is going through a transition,” Jim Janesky, a an analyst at Nashville, Tennessee-based Avondale Partners LLC, said in a phone interview.
Suitors may still be drawn to Monster’s international business, which posted an operating profit in 2011 for the first time in three years, said SunTrust’s Sommer and Evercore’s Arthur.
Monster is “the best fully-developed international player from a U.S. point of view,” Arthur, who estimates a price tag of at least $12 a share, said in a phone interview. “Those are expensive markets to penetrate and more expensive to get market leadership in, and Monster’s already there.”
Private equity firms could be enticed by Monster’s free cash flow, said Bill Kavaler, a special situations analyst at Oscar Gruss & Son Inc. in New York. Cash from operations after deducting capital expenses will reach $108 million in 2013, according to analysts’ estimates compiled by Bloomberg, a 23 percent increase from 2011.
Staffing companies such as Manpower Inc. (MAN), with a market capitalization of $3.4 billion yesterday, and Robert Half International Inc. (RHI), valued at $4 billion, also may be attracted by the prospect of higher earnings amid a potential U.S. economic recovery, he said.
“Private equity would be very interested in this one,” Kavaler said in a phone interview. “What you’re really betting on is an upturn in the U.S. labor market.”
The U.S. jobless rate unexpectedly fell to 8.3 percent in January, the lowest level in three years, Labor Department figures showed last month. The unemployment rate has dropped every month since August, and economists surveyed by Bloomberg project it will reach 7.25 percent in 2014.
‘A Different Way’
LinkedIn (LNKD), the social network for professionals that’s more than eight times the size of Monster, may be interested in buying Monster to add resumes and tap revenue from increased corporate hiring that would accompany an improvement in the U.S. jobless rate, according to Avondale’s Janesky.
“LinkedIn certainly has the resources to do something like this, and they are in online recruitment in a different way,” Janesky said. “It would be a challenge, but it does come to mind as a potential company.”
Hani Durzy, a spokesman at Mountain View, California-based LinkedIn, Reesa Staten of Menlo Park, California-based Robert Half and Milwaukee-based Manpower’s Britt Zarling declined to comment on whether the companies are considering buying Monster.
Traders in the options market have never been more bullish on the possibility of a takeover. Implied volatility, the key gauge of options prices, for calls on three-month contracts that pay off if Monster gains 10 percent surged 47 percent on March 1, exceeding the cost of puts by the most since November 2007, data compiled by Bloomberg show. Monster’s skew, a measure of prices for puts versus calls, slipped to 0.967 on March 2, the lowest on record.
‘Classic Takeover Candidate’
Demand is the highest for options that expire in June, indicating that traders are betting on a transaction that month, said Nicole T. Wachs, an options analyst at TradeKing Inc. in Charlotte, North Carolina.
“It looks like a classic takeover candidate based on what’s going on in the options market,” Wachs said in a phone interview. “If somebody sees that they’re not dead yet and they still have some potential, they’re going to scoop them up.”