Regarding Earthlink! The reason the deal took so long to announce is they changed it from the first execution back in July. Instead of serving just as a "back up" bank on the Earthlink site . . . USAB is now the #1 Exclusive Bank!
The merger with Mindspring now makes ELNK #2 behind AOL. This deal could have cost another bank hundreds of millions of dollars. For USAB - variable cost and the warrants for 3% of the company @ $12 a share! (The deal has both equity and variable components, based on how many new accounts are generated, per fee cost based on volume. USAB can use ELNK like a faucet, if they get too many new accounts they can pull back on the advertisements) There was NO UPFRONT FEE . . . ZERO!
SPO buyers did not know anything about this, because they did not become the #1 bank until only a week ago.
Why did USAB get this deal? The USAB site is what ELNK thinks young people want, their energyONE is rated #1, and they gave them something no one else did – equity! Also, ELNK loved their flash site for broadband users.
Earthlink is the first ones to actually take equity. No other internet bank anywhere has shared equity, at all with a major e-commerce portal. USAB is the first ever FDIC insured company to issue an equity interest to an internet company.
I don't know the variable components, so don't even ask. Call them yourself if you want more details!
Regarding Dilution! How can warrants to purchase stock at $12.00/share be dilutive to shareholders who have a current book value that is $4.00/share?
It's accretive, by a lot. But that's only if the stock passes $12.00. And if it does, they have to actually pay USAB $12.00 per share to get the stock. It is, in essence, free because the warrants are out of the money and designed to create an incentive to work together in growing the bank's Network.
It's Earthlink's risk, not USAB's - if the stock does not pass $12.00!
Regarding money to be paid to Earthlink! My understanding is . . . very little or no money will change hands between Earthlink and USAB. USAB will pay Earthlink for every new account that is brought in, this can be in the form of cash or stock. |
