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Thursday, Mar 28, 2024

United Online to Seek Profits from Patents

While market watchers are closely monitoring United Online Inc. as it moves forward to spin off its FTD business into a separate publicly traded company, what’s going on behind the scenes could prove important to the bottom line. The spin-off is just the first step in a broad strategic review that United Online is conducting, said CEO Mark Goldston, in an interview last week. The Woodland Hills-based company has hired Los Angeles investment bank Moelis & Co. to explore options for its remaining businesses, including how to maximize the value in its extensive patent portfolio. With approximately 75 patents owned or pending, Goldston said United Online intends to “monetize our intellectual property as other companies have done.” He referred to having a “broad arsenal of patents,” some of which “date back to early days of the Internet.” Goldston said the company may sell a portfolio of patents, license some of its patents or do a combination. “We are considering any and all options,” he said. In the interim, the market has reacted with favor to United Online’s recent announcement that it plans to spin off its largest asset, FTD, in the first quarter of next year. The August 1 news prompted several analysts to upgrade their ratings of United Online to “buy,” sparking a 24 percent increase in share price the next trading day to $5.20, which at the time was the stock’s highest level in six months. In the three weeks since, that price has held consistent or risen slightly. Those are good signs for United Online, which also owns school alumni social network sites Classmates.com and MemoryLane.com and Internet access services NetZero and Juno. Those assets pale in comparison to FTD, which generated 65 percent of the company’s revenue last year, up from 60 percent in 2010 and 55 percent in 2009. FTD “has definitely turned into the strong performer, while the social networking and Internet access businesses have definitely lagged,” said Anil Gupta, an analyst with Imperial Capital LLC in Los Angeles. Mike Crawford, an analyst for B. Riley & Co. Inc. in Newport Beach, said he thinks the spin-off plan is a good idea. “In my opinion the company, as currently structured, is not getting the credit for the value of its various components,” he said. “We believe that United Online’s plan to separate FTD — a dominant, profitable, e-commerce asset — will unlock significant shareholder value.” Spin-off strategy The proposed FTD spin-off reflects a business model implemented or announced by several other major companies this year: Kraft is splitting its North American grocery business from its global snack foods brands; ConocoPhillips recently spun off its refining business as Phillips 66, and Marathon Oil spun off Marathon Petroleum. To maximize the value in FTD and Interflora, its European equivalent, United Online completed a massive revamping of FTD before announcing the spin-off plan. It improved florist relations, redesigned its floral packaging and “revived and glorified the FTD Mercury Man” — a logo depicting Hermes, the mythological messenger of the Greek gods. If FTD is spun off, United Online would continue separately as operator of the company’s other businesses, including the school social networking sites and Internet access services. In addition, FTD would encompass the operations of Interflora. FTD and Interflora comprise a network of about 40,000 floral shops worldwide that deliver flowers and gifts ordered online. Under the proposal, United Online shareholders will receive equivalent shares in the new company to compensate for the loss of equity in the original stocks. They may then buy and sell stocks from either company independently, which potentially makes their investment in the companies more attractive because they can invest in the portion of the business they think will have the most growth. Jeff Reeves, editor of InvestorPlace.com, said it is too early to tell whether there will be a benefit to owning shares in both companies. The spin-off of FTD “could liberate it from bureaucracy and help it grow,” he said, though he cautioned against investing before the spin off. Holding a stake in United Online’s other companies, he said, “doesn’t seem wise. If you get in before the company splits up, you’ll be stuck with some of both.” United Online purchased FTD four years ago in a diversification mode that dovetailed with what investors wanted. While that business model made sense before the 2008 market crash, it no longer does, Goldston said, noting that’s why United Online decided to make FTD a separate publicly traded company from its other businesses. “In today’s market environment, people are relatively negative on conglomerate stories,” Goldston said. “Four or five years ago, having a diversified story was considered a terrific thing. Companies like ours were encouraged to branch out.” Then, as the market shifted, “investors started seeking clarity in the investment message instead of diversity,” he said. The proposed spin-off requires approval by United Online’s board of directors, which granted preliminary approval Aug. 1, as well as the Internal Revenue Service and the Securities and Exchange Commission. Final approval may take up to nine months.

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