Web search firm GoTo.com Inc. said Wednesday that it will sell at least 2.5 million shares of its stock, which has quadrupled in value since late March.
And Pasadena-based Internet incubator Idealab, which owns 25.6% of GoTo.com, also will sell at least 5 million shares in the firm to preserve an exemption from federal securities law. Those shares are worth almost $120 million.
GoTo.com would raise about $60 million for its portion of the offering, at current prices. Proceeds will be used to expand in overseas markets such as Germany and for general corporate purposes, the Pasadena-based firm said.
Analysts suggested that Idealab engineered the joint offering to bolster its balance sheet. The privately held incubator founded by entrepreneur Bill Gross spent $800 million last year in preparation for an initial public offering that never happened and has seen several of its offspring, including EToys Inc., go out of business.
"Idealab clearly wasn't in a great financial position, and this was one of their biggest and most liquid holdings," said Darren Chervitz, an analyst at Jacob Asset Management.
But GoTo.com spokesman Jim Olson insisted it was "solely GoTo's decision" to sell shares to raise working capital.
As a result of the stock sale plan, Idealab said it must reduce its GoTo.com stake to stay in compliance with an agreement with the Securities and Exchange Commission.
Last year, in preparation for its IPO, Idealab spent months persuading the SEC that it should not be classified as an "investment company" simply because it retains stakes in the start-ups it creates.
GoTo.com's issuance of new shares will reduce Idealab's stake in the firm. Under the SEC deal, Idealab then must further cut its stake to maintain its exemption from the investment-company rule.
Idealab said it will retain a 15.5% stake in GoTo.com.
GoTo.com is the healthiest of dozens of Idealab spinoffs. The company is on track to break even by the end of the year, according to company executives and analysts.
GoTo.com's stock is nearly 60% above its IPO price. Shares fell $2.86 to $23.78 on Wednesday on Nasdaq.
Bloomberg News was used in compiling this report.