Mindspring's Repeated Stock Sales 'Dry Powder' for Acquisitions
Atlanta, April 23 (Bloomberg) -- Mindspring Enterprises Inc. sells stock to the public perhaps more often than any other Internet company. It does so to load up on cash for acquisitions before it needs the money, said President Mike McQuary.
Atlanta-based Mindspring, which connects companies and individuals to the Internet, has sold stock four times since its March 1996 initial public offering, more often than America Online Inc., which has completed three sales since its 1992 IPO.
''We've tried to go out to the investment community when it's receptive so that we have cash on hand to take advantage of potential strategic acquisitions,'' McQuary, who's also chief operating officer, said in an interview. ''We try to get the money in advance because we like to have dry powder for when we need it.''
Publicly traded companies that do business on the Internet, spurred by surging share prices, are increasingly returning to market to sell shares, in some cases as soon as four months after an IPO. No company has dipped its ladle as often in the past 12 months as Mindspring.
At least 12 Internet companies have filed to sell stock more than once in the past year. In 11 cases, the filings were for an IPO and a secondary stock sale. Only Mindspring has had three secondary sales in the period, most recently a $276 million stock offering, completed last week and managed by Goldman, Sachs & Co.
''That is unusual, but they've fueled a big chunk of their growth with acquisitions,'' paying in stock and cash, said Youssef Squali, analyst with Ladenburg Thalmann & Co. ''If they can keep buying other (companies) and paying $300 a subscriber, when the stock market values them at $2,500, that's a no- brainer.''
Not 'Tricking People'
Navellier & Associates Inc., which manages $2 billion in Reno, Nevada, has more than 500,000 Mindspring shares and has been buying more, said President Louis Navellier. Several Navellier-managed mutual funds own another 100,000 shares, he said. He isn't bothered by its issuance of shares, even though it reduces earnings-per-share for prior investors.
''It's the most conservatively managed of any of the high- flying Internet stocks,'' said Navellier. ''They're not doing this just to be tricking people.''
Also in the latest offering the company sold $180 million of 7-year notes, carrying a 5 percent interest rate and convertible into common stock. It could issue a further $340 million in new equity under a recent $800 million shelf registration.
Mindspring has completed more than a dozen subscriber purchases in the past year, including the $245 million acquisition of Netcom On-Line Communications Services Inc. from ICG Communications Inc. That transaction, completed in February, added about 390,000 subscribers at a cost of about $600 apiece, helping push Mindspring's total to about 1.1 million, said Squali, who recommends investors buy the stock and has a 12-month price target of 140.
Mindspring rose 1 5/16 to 108 1/4. Its market value is about $3.1 billion.
Earnings Due
Mindspring could make further acquisitions, as some of the 4,800 companies that let users access the Internet via personal computers buy each other, Squali said.
Excluding amortization and depreciation, much of it tied to acquisitions, the company will show a first-quarter profit of 13 cents a share, according to a survey of six analysts by First Call Corp. Squali expects 15 cents when earnings are reported next week.
The company earned $10.5 million, or 43 cents, in 1998.
''We try to guide our analysts to cover us so the value of our company doesn't outrun our ability to support it,'' said McQuary, 39.
The company ''has real revenues, real profits and it's just over five years old,'' he said. ''We've become one of the venerable blue chips in the sector, without some of the wild fluctuations we've seen.''
Mindspring's stock has doubled since it last split its stock 3 for 1 in July 1998. Still, unlike such companies as E*Trade Group Inc. and Charles Schwab Corp., which this week said they'll split their shares for the second time in less than a year, it has no immediate plans to do so again.
''We don't do it just to stimulate the stock price,'' said McQuary. ''We try to think about it on a longer-term basis. Doing it more than once in a year has been unheard of until recently.''
Apr/23/1999 16:06
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