“We are continuing to work toward our planned spin-off of FTD as an independent, publicly-traded company, and expect to complete this transaction by the end of the third quarter of 2013. We already have submitted our request for a private letter ruling from the Internal Revenue Service regarding the tax-free status of the spin-off,” said Mark R. Goldston, Chairman, President and Chief Executive Officer of United Online. “We also are continuing to explore strategic alternatives for our other businesses and monetization opportunities for our patent portfolio.”
The company continued to show growth in the FTD business coupled with declines in the Communications and Content businesses. The company also took a $26.9 million writedown on its struggling MyPoints business. Given the poor quality of the kind of incentivized traffic MyPoints produces, it is unlikely that it will ever again contribute meaningfully to United’s results. On its conference call (transcript available at Seeking Alpha), the company was quite bullish on the performance of FTD over the Valentine’s Day holiday, after the close of the quarter. The company also provided additional information on the spinoff, particularly around the reason for the delay:
Now I want to give you an update on the spinoff. We’re continuing to make great progress on the planned spinoff of FTD, which will include the domestic and international operations of our FTD segment, and it will become an independent publicly traded company. The spinoff is expected to take the form of a tax free, pro rata distribution to all shareholders of United Online. So towards that objective, we have submitted to the IRS our request for a ruling on the tax-free nature of the spinoff. We just recently did that. And we expect to make the appropriate filings with the Securities and Exchange Commission relating to the spinoff by April of 2013. The spinoff transaction remains subject to a number of conditions, including final approval of the transaction specifics by our board and is now planned to be completed by the end of the third quarter of 2013, after FTD becomes eligible as a 5-year trade or business for tax purposes. And as you know, the anniversary — 5-year anniversary of our acquisition of FTD will be approximately August 27, 2013, at which point it becomes a 5-year tradable asset.
The company expects to file the Form 10 for FTD in April, and for the first time, raises the 5 year issue. In response to several question, the company clarified a bit further:
Usually they’re telling us the IRS is a 4- to 6-month process. I mean, that’s for everybody. That’s what we’ve been told. And as you know, Mike, we sort of have our 5-year anniversary on the FTD asset August 26, 27. And so rather than trying to make this complex, we figured we’d make this a very simple, clean, tax-free spin without putting another asset inside of FTD to get 5-year trading status. FTD will have it on its own at the end of August. So we don’t anticipate this being complex at all. So sometime in the third quarter, we think we’re having this thing done.
…
That is correct, George. It is — originally, I will tell you, originally, when we first started talking about the possibility of doing this spin, one of the things that we were considering as a board was should we take one of our other assets or et cetera, et cetera and should we potentially put something together, which made it an immediate 5-year trading asset. And then in looking at that, we said, look, come August, FTD is a 5-year trading asset on its own so why do that? Let’s keep remain co, [ph] United Online, clean as to how people will understand it and how they’ve understood it before and let’s leave FTD as a very clear story that’s not complicated to the investor. And so in order to do that, we have to wait up to and through the anniversary date of the purchase, which is this August 27 date. We bought it on the 26th so the 27th, effectively, you’re a 5-year trading asset. And that makes it completely clean and completely easy to understand. So that’s the way we’re looking at it. Look, you know, George, better than anybody, we’ve had these discussions. The Street wants clarity on these assets and clarity would basically say to us why put another asset that is not related to the flower and gift business inside of FTD to achieve 5-year trading status when by just waiting till the end of August, you can have a clear, focused floral and gift company that qualifies on its own. And that’s exactly what the thinking is.
The FTD business is clearly the stronger business here. As delays continue to mount, the question, increasingly, is, what is the value of the declining businesses that will remain in the stub? MyPoints is nearly worthless, the dial-up business continues its terminal decline, and Classmates is searching for a reason to exist in a Facebook(FB) world. For how much longer can they continue to wring cash flow out of these increasingly tired assets?
Disclosure: The author holds no position in any stock mentioned
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