The company has advised its stockholders to vote to adopt the existing merger agreement between Answers.com and AFCV Holdings.  It disclosed that it received an unsolicited letter from Brad Greenspan over the weekend that was purportedly representing Social Slingshot Pte Ltd. and eJuggernaut LLC.

What Answers.com is telegraphing is that it acknowledged the receipt of a letter but it does not believe the offer is credible.  It noted, “The letter included a speculative proposal, subject to numerous contingencies and uncertainties, to acquire a controlling interest in Answers.com, which the Board rejected. The proposal purports to offer to acquire the Answers.com common stock outstanding for $13.50 per share in cash, plus A and B warrants to acquire common stock at exercise prices of $23.50 and $46.50, respectively.”  The company even listed many concerns and questions about the offer in its press release this morning.

The company intends to adjourn the special meeting of stockholders to vote on adoption of the merger agreement with AFCV immediately after it is commenced and to reconvene the meeting at 10:00 a.m. Eastern Time on Thursday, April 14, 2011.

Even for a buyout target, Answers.com is small with a $85 million market value.  It offers no traded stock options and the trading volume has been rather light.

It was just last week that proxy firm ISS recommended that shareholders vote for the existing AFCV offer on the table.  The merger was give regulatory approval just a month ago but a firm called Osmium Partners said the offer grossly undervalued Answers.com as recently as February.

Generally speaking, these last-minute tenders fail to gain much traction.  It is also too know who really sent the offer without the details, even if the name Brad Greenspan (the MySpace Brad Greenspan) is well-known.  If Wall Street or Main Street believed the offer, shares would be higher than they are.  The stock has not eve risen above this $10.50 hurdle and trading volume has remained very light so far.

JON C. OGG

Answers.com board which, includes founder and CEO Bob Rosenschein, has decided to sell the company to AFCV Holdings for $10.50. Rosenschein, it turns out, is his own worst enemy. Anyone who has listened to his detailed arguments about Answer.com’s prospects would turn down the $10.50 offer in an instant.

Answers.com now faces class action suits about the buyout price. And shareholder Osmium Partners, which owns 6% of ANSW shares via several funds, has begun to agitate to block the deal. It looks like Rosenschein will not be able to close the sale plan for the company he started.

From the 13D:

EXHIBIT 2

Osmium Partners considers AFCV Holdings’ $10.50 offer for Answers.com grossly inadequate Osmium believes that Answers.com’s business is materially undervalued by the stock market as a going concern, and that AFCV Holdings’ offer does not come close to representing fair value.

 

Point 1: Answers.com’s CEO and CSO recently made the following public comments about the company’s exceptional growth, market share gains, product enhancements, and expectations for imminent margin improvement at the company.

● CEO Bob Rosenschein stated on November 8, 2010, “We are confident that Q4 2010 revenue will be materially better than Q3 2010 revenue, and we expect that our 2011 revenue will also exhibit healthy growth over 2010.”

● CEO Bob Rosenschein stated on November 8, 2010, “We are also reaching audience scale in a number of the most desirable and highest monetizing advertising verticals, and our plan is to exploit this potential in 2011.”

● At a conference on January 13, 2011, CSO Bruce Smith characterized Answers.com’s industry as a “Large, important, & growing market” and specifically highlighted that Answers.com has “gained significant share over the last three years” with the fastest growing US Domain from 2007-09 and with unique visitor growth accelerating from the top 1500 to top the 50.

● CSO Bruce Smith stated on January 13, 2011, that growth in market share has led to the “2nd most active user generated content answer site.”

● CSO Bruce Smith stated on January 13, 2011, “Direct ad sales effort will capture significant monetization upside and better capitalize on Answers.com highly sought after young demographic” This effort will begin in the first half of 2011.

● On November 8, 2010, CEO Bob Rosenschein discussed the significant monetization opportunities the company is about to embark on given the significant ramp up in site traffic which will allow the company to hire a direct advertising sales force. “Over the last two years, from 3Q08 to 3Q10, our traffic has jumped 86%, and this volume changes everything.”

 
Point 2: According to data from wikianswers.com and recent presentations from Answers.com, Wikianswers.com has recently been adding approximately 1 million new answers every sixty days and has seen its answers database grow from 2 million to 11.5 million answers over the last three years. Additionally, the Wikianswers site has just crossed the 6 millionth registered user mark.. It is very clear the business’s key monetization drivers are scaling successfully and AFCV’s offer fails to capture this success. Simply put, if Answers.com continues to add approximately 1 million answers every sixty days and revenue per thousand impressions (RPM) improves modestly with current traffic trends, within two years revenue should reach $50 million with very significant margins. The enormous scalability of this business model is illustrated in the 46% revenue growth and 378% adjusted EBITDA growth (from $1.6 to $7.7mn) from 2008 to 2009, representing a 94% incremental margin. AFCV’s offer fails to capture: a) current growth trends and b) operating leverage in Answers.com business model. Long term shareholders like Osmium should not be penalized by management’s failure at this juncture to attract an appropriate shareholder base or Wall Street coverage, or to attain an appropriate social media valuation.

 

Point 3: Osmium Partners believes that management has agreed to sell at the worst possible time:    • Nearly two years ago on February 2, 2009, near the bottom of the financial crisis Answers.com’s stock closed at $9.20 a share. In the two years since then, the NASDAQ, Russell 2000, and Russell Microcap Index have returned on average +79%, while Answers.com’s share price actually declined by 3% over the same period. Said another way, if ANSW performed in line with applicable market averages, ANSW’s share price would have been $16.43 on February 2, 2011, not $8.90.

 
• In October 2010, we assumed that management must have believed that their share price was significantly undervalued because the company hired both a Public Relations and Investor Relations firm to help the company gain more attention from investors and presumably a higher share price. Management stated its intention to utilize these firms after 4Q 2010 results were released. Those results are scheduled to be released at the end of February.

 

• We are surprised that the board of directors accepted AFCV’s offer when it did. Earnings for Q4 were expected within three weeks of the announcement of the deal, and AFCV and the insiders clearly know the results, which should be consistent with the prior public statements of management. Plus, the deal was announced only one week after the highly successful IPO of competitor Demand Media (DMD), which has a current valuation of 35x EBITDA. By contrast, AFCV’s deal values the company at 12 times EV/EBITDA based on 2009 results when the company averaged approximately 4.5 million answers, versus 11.5 million currently, an increase of 155%. While 2010 was a transition year given significant investments in the business and short term/temporary monetization issues (per management’s comments/actions), we believe the underlying earnings power has increase materially.

 

• The company’s small market capitalization in a highly attractive market segment has been overlooked by sell side analysts, as the company has not a single Wall Street Analyst writing research on the company, and this has resulted in a depressed valuation. Osmium Partners believes the offer by AFCV Holdings fails by a wide margin to capture the intrinsic value of the business. We have received numerous unsolicited calls from other shareholders who all share in our outrage with the AFCV offer. Given the difference between AFCV’s offer and our estimate of fair value as a going concern, we intend to use all legal means to protect our interests..

Sincerely, John H. Lewis Managing Partner

Osmium

Source: Capital IQ

Douglas A. McIntyre

The total cash consideration is roughly $127 million, and the common stock purchase price comes to $10.50 per share.  AFCV will acquire all outstanding shares of Series A convertible preferred stock and Series B convertible preferred stock as well.  The holders of Series A and Series B convertible preferred stock will also be entitled to receive cash consideration based on the number of the common stock into which those shares are convertible at the time of the merger.

The $10.50 premium buyout comes to about 18% from yesterday’s $8.90 close and the 30-day average premium is roughly 33%.  The 52-week trading range is $4.50 to $9.75.  To go back to higher share prices, you have to go back to early-2007.  Shares briefly went above $20.00 in early-2005 after a massive run-up from around $5.00 in late-2004.  Answers.com had a market cap of roughly $71 million as of yesterday’s close.

The board of directors of Answers.com has unanimously approved the merger and recommends that  stockholders vote to approve the merger agreement.  The transaction does have fully committed financing and is expected to close in the second quarter of 2011, subject to the satisfaction of customary closing conditions.

JON C. OGG

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JON C. OGG
October 14, 2009

The transaction was listed as yesterday and consisted of $6 million of series A convertible preferred stock, convertible into 1,333,333 shares of common stock at a conversion price of $4.50 per share, with 50% warrant coverage at an exercise price of $4.95. Redpoint was also issued a second tranche warrant, exercisable over the next 12 months, to purchase up to an additional $7 million of series B convertible preferred stock, convertible into 1,272,727 shares of common stock at a conversion price of $5.50 per share, with 50% warrant coverage at an exercise price of $6.05.

Answers Corp. closed yesterday at $3.92, and its 52-week trading range is $3.30 to $13.40.  prior to this offering, its market cap was a mere $30.8 million.

Answers is the creator of the answer engine offering Answers.com(TM) and WikiAnswers.com(TM).  Redpoint is a Menlo Park, CA, based venture capital firm that specializes in early stage and growth capital investments for the Internet and technology sectors.  Redpoint’s Allen Beasley will join the board of directors at Answers and the firm will get a second board seat if it exercises its second financing.

You can join our open email distribution list to hear about other mergers, IPO’s, secondary offerings, private financings, activist investors, and more.

Jon C. Ogg
June 17, 2008

All that is left of that period, at least which still have any size and scale, are Yahoo!, Ebay (EBAY), and Amazon (AMZN). Amazon is such a diverse business now that it can hardly be considered Web 1.0. It sells set-top boxes, music downloads, and, perhaps most important, has a large business to license its infrastructure to Web 2.0 companies.

The earnings news out of Yahoo! made it plain that it can do nothing to save itself from the fate of being a company with only the most modest revenue growth and embarrassing margins.(Entire earnings transcript here from BloggingStocks) Some might see that as humiliating, but it is not much different from being in the steel business in the 1960s or the US car business in the 1990s. The market changes. One or two strategic decisions go the wrong way. Voila! The company is in the toilet.

The Yahoo! news is bad for scores of other companies from Looksmart (LOOK) to Answers.com (ANSW) to The New York Times (NYT) About.com to MSN and AOL. A large part of what makes the internet work, at least financially, has nothing to do with these companies.

Web 1.0 needs to schedule its wake now. Someone make sure to put coins on the body’s eyes.

Douglas A. McIntyre

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Jon C. Ogg
January 7, 2007

The results were a bit off. Revenues were $2,2 million in Q3 2007, an increase of 19% compared to the same period in 2006,

GAAP net loss in Q3 2007 was $1.950 million, an increase of $769 thousand compared to the same period in 2006. GAAP net loss per share in Q3 2007 was $0.25, compared to $0.15 in the same period in 2006.

The company expects revenue of about $3 million in Q4 and a GAAP loss of about $1 million.

Another big disappointment for Answers.

Douglas A. McIntyre

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