FindWhat.com Finds Skeletons in Espotting's Closet
September 19, 2003
By Brian Morrissey
internetnews.com
Paid search company FindWhat.com (Quote, Chart) said on Friday it is renegotiating its agreement to buy European paid listings company Espotting after it found problems with the company's finances.
The announcement casts some doubt as to whether the $163 million merger will go through. FindWhat.com said it might walk away from the deal if it cannot get a better price. The deal was due to close in the fourth quarter.
According to the Fort Myers, Fla.-based search provider, its post-merger examination of Espotting's books turned up some surprises regarding Espotting's purported profitability and projected financials. FindWhat said it is working with Espotting to get its results in conformity with U.S. accounting standards.
"As a result of its examination, FindWhat.com is retracting all previous statements it has made regarding Espotting's historical and projected financial performance, specifically comments made related to Espotting's profitability and the companies' post-closing pro forma financial expectations," the company said in a statement.
"We felt confident that the numbers we'd given the Street were not accurate, so we felt we needed to retract them," said Craig Pisaris-Henderson, FindWhat.com's chief executive.
Pisaris-Henderson declined to elaborate on how long the examination of Espotting's finances would take.
At the deal's announcement in June, Espotting CEO Daniel Ishag said the company turned profitable in the first quarter. Espotting forecast $7.5 million in pre-tax income for the year on $75 million of revenue.
Under terms of the merger, Espotting's shareholders were to receive 8.1 million shares of FindWhat and $27 million in cash. The amount of cash was to vary depending on Espotting's audited financial results. Both companies' boards of directors already approved the deal. The companies did not release details of the agreement's break-up clauses.
FindWhat said that it would seek to lower the purchase price and change other parts of the merger agreement in light of its findings.
Both companies operate pay-per-click advertising systems, with FindWhat operating in the United States and Espotting based in Europe. With the merger in some doubt, so too is FindWhat's strategy of expanding its U.S. base into Europe.
FindWhat has carved itself a niche by aggregating a distribution network of small sites. Espotting, on the other hand, competes head-on in Europe with the titans of paid listings: Google and Overture Services. Espotting, started in the United Kingdom in February 2000, now has operations in 10 countries. It has faced stiff competition with Overture, which has established itself as the clear leader in the European market. Yesterday, Overture announced new operations in Spain, its seventh European market. By the end of the year, Overture expects its paid listings will be available in 10 European markets.
Google has also made a strong push in Europe. While mostly relying on its local sites for distribution, the search giant has made some distribution deals. In May, Espotting lost a key deal when Ask Jeeves UK dropped it in favor of Google, which handles Ask Jeeves' paid search in the United States. The company is also likely to lose its deal with Yahoo! Europe once Yahoo!'s acquisition of Overture is complete at the end of the year. In addition, Espotting has a distribution deal with Applied Semantics, which was acquired by Google.
Despite its reported profitability, eSpotting was not flush with cash. As part of the merger agreement, FindWhat loaned Espotting $2 million.
FindWhat said the problems with the merger would not affect its own results, which it expects will be in line with previous guidance of $70 million in sales and 78 cents per share in pro forma earnings. |
