Proposed sale price angers some Hoover’s stockholders

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Several large shareholders of Hoover’s Inc. are speaking out against the company’s pending acquisition by D&B Corp., saying the $117 million cash deal announced Dec. 5 underestimates the value of the online business-information provider.

"We’re extremely disappointed in the price," said shareholder Scott Link, portfolio manager of Disciplined Growth Investors Inc. "They’re selling out at seven bucks a share. If your stock is trading around $5 today, and you think it could be worth 25 to 35 bucks in five years, why sell out?"

Link said forecasts by Hoover’s and others pegged net income for the company at $25 million in five years. "The company is worth a minimum $12 a share," Link said.

Others agreed with Link’s contention that the sale price is too low.

"They sold us out," said John Lewis, director of research at Retzer Capital L.L.C., an institutional shareholder.

Mario Cibelli, a partner at Marathon Partners L.P., said: "There’s no reason in the world to sell it now. I don’t believe the D&B valuation gives much, if any, credit to the future growth potential of the company. Hoover’s occupies a very valuable niche." Marathon Partners is Hoover’s third-largest shareholder, with a 9.02% stake.

Hoover’s two largest shareholders—AOL Time Warner (16.9%) and Media General (15.5%)—have both endorsed the deal.

A Hoover’s spokesman also defended it. "At the time the deal was announced, if the markets were efficient and all investors held the same belief of future results, then the share price would’ve already reflected the $7 as a day-to-day market price," said Frank Milano, Hoover’s investor relations officer. "Ultimately, the share price reflects risk vs. reward. We believe the price is fair."

Hoover’s has an online database of more than 18,000 companies and 170,000 executives in 300 industries, with an emphasis on small businesses. The company reported revenue of $31.6 million for the 12 months ended Sept. 30, 2002, with 74% of that coming from subscriptions. Net income totaled $1.17 million.

Greater Web presence

The deal gives D&B what it has been seeking: a greater Web presence.

"We are migrating our revenue to the Web because it is a more efficient model," D&B Chairman-CEO Allen Loren said in announcing the deal. Loren added that Hoover’s annual growth rate of more than 20% and its small-business focus make it especially appealing to D&B.

D&B executives declined to be interviewed for this report.

"Allen is trying to do the right thing for his shareholders," said Cibelli, adding that he couldn’t say the same about Hoover’s management. "I think they’ve done a great disservice to shareholders."

A special stockholder meeting to vote on the proposed acquisition must be held by Feb. 17 to comply with Securities and Exchange Commission rules. As of press time, a date had not been set.

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