Angie's List shares are trading well above the offer price extended by Internet giant IAC on May 1, a signal that investors are enthusiastic about the conglomerate's plan to combine Angie's with portfolio company HomeAdvisor into a new publicly traded company.
Angie's List shares closed May 1 at $5.89, not long before IAC announced it had reached a cash-and-stock deal to acquire Angie's for $8.50 a share—a total of $505 million—and fuse it with HomeAdvisor to create ANGI HomeServices Inc. Since then, the stock has surged about 99 percent, closing Wednesday at $11.74 a share.
Most Angie's List shareholders will receive stock in the new, Colorado-based public company when the deal closes late this year. Investors can ask for cash instead, but the portion of the purchase price to be paid in cash is capped at $130 million.
Observers said investors are likely bullish on the new home services marketplace company, which would have a combined network of 200,000 service providers and a consumer base of more than 22 million monthly users.
"I think people are excited about the combination," said Mark Foster, chief investment officer at Columbus-based investment firm Kirr Marbach.
HomeAdvisor has done well but is only a small part of IAC. "So, you put HomeAdvisor and Angie's together, they trade as a separate company, and this is really the way to play that separate company—own Angie's and convert that into the shares of the new company, as opposed to doing it through IAC," Foster said. "I think that's what people are playing at this point."
In November 2015, Angie's List had spurned IAC's unsolicited all-cash offer of $8.75 per share, with Angie's CEO Scott Durchslag saying he wanted to see if he could increase shareholder value on a standalone basis. But Durchslag altered course in November 2016 when he announced the company was seeking "strategic alternatives."
Foster said the recent stock surge is good for Angie's shareholders, as the stock has mostly traded under $10 a share since mid-2014. He said the tie-up with HomeAdvisor brings benefits of new management, synergies and cost savings.
"I think that's really the driver," Foster said about the stock price, "that you put these two together and two plus two equals more than four."
Ken Skarbeck, managing partner of Aldebaran Capital in Indianapolis, said IAC has used the same spinoff playbook successfully in the past. Among the companies it acquired and later turned into public companies were Expedia and Ticketmaster.
"Frankly, I think it’s a bit of a misnomer to describe these kinds of companies as 'technology' businesses," Skarbeck said of Angie's and HomeAdvisor. "What rings the cash register for these companies is plain old advertising. They are like an enhanced Yellow Pages where the online presence allows the user more options that print-based advertising business cannot match."