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Analysts ponder DoubleClick's options

November 2004

Analysts ponder DoubleClick's options

by David Shabelman


DoubleClick Inc.'s decision Sunday, Oct. 31, to hire Lazard for financial advice had analysts wondering just how hot other companies would view DoubleClick's chosen market niche. New York-based DoubleClick said it hired Lazard to look at the sale of part or all of its businesses, or a recapitalization, a share repurchase, a dividend payout or a spinoff. DoubleClick officials had no additional comment about its intentions, but according to a source close to DoubleClick the company has no pre-conceived ideas about what it will do. 

"This is a really good time for us to be proactive in looking at what our alternatives are," the source said. "We're open to exploring the whole gamut of what's in front of us."

The announcement sparked a rally in the company's stock price. Shares of DoubleClick were up 13% Monday, at $7.17 after dropping 8% on Oct. 29 after the company reported its third-quarter earnings. Though its revenues for the third quarter topped expectations, the company lowered guidance for the fourth quarter, disappointing investors.

Analysts said it was unclear whether DoubleClick would sell the entire business, only underperforming parts of the business, or even give back cash to shareholders. "My guess is at least part of the company will be sold," said Troy Mastin, research analyst with William Blair & Co. in Chicago. "I don't know if it will be 100% or 30%."

Mastin places total value of DoubleClick at between $8.75 and $11 a share, or $1.1 billion to $1.4 billion. DoubleClick had $389 million in net cash, or $3.10 per share as of Sept. 30.

David Hallerman, senior analyst with New York-based eMarketer Inc., said DoubleClick may choose to sell its Abacus direct-mail marketing group so it can focus more on its online advertising divisions. DoubleClick acquired Abacus Direct Corp. for $1.7 billion in stock in 1999, around the height of the dot-com boom.

Ken Marlin, founder and managing partner with Marlin & Associates in New York, an adviser and consultant in the digital information sector, said as part of a larger organization DoubleClick would be in a better position to take advantage of a very hot market for online advertising.

Among potential acquirers, he mentioned search advertising leaders Yahoo! Inc. of Sunnyvale, Calif., and Google Inc. of Mountain View, Calif. Other strategic buyers, he said, include aQuantive Inc., which already this year acquired online marketing firm SBI.Razorfish and 24/7 Real Media, though both are smaller than DoubleClick.

Marlin added that DoubleClick also could team up with larger media companies or a traditional advertising firm. New York-based IAC/InterActiveCorp. has been a rumored suitor for DoubleClick previously.

The online advertising sector has seen a number of acquisitions this year. In addition to aQuantive's acquisition of SBI.Razorfish for $160 million, New York-based Time Warner Inc.'s America Online Inc. unit bought Baltimore-based for $435 million in June. Also, Chicago online advertising firm Ltd. acquired rival Exile On Seventh LLC of San Francisco for undisclosed terms in June.

That same month, e-mail marketing company Return Path Inc. of New York acquired NetCreations Inc. of New York for undisclosed terms.

The acquisitions come as more advertisers shift portions of their budgets online. According to eMarketer, the online advertising market will see revenues of $9.4 billion in 2004, up 29% over the $7.3 billion seen in 2003. It is expected to jump to $11.3 billion in 2005 and $13.3 billion in 2006.

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