With its dial-up Internet business wilting, United Online Inc. is getting into the flower business.
The Woodland Hills company, which pioneered low-cost Internet access with its NetZero and Juno brands, said Wednesday that it planned to buy FTD Group Inc., a seller of flower products, for $456 million plus assumed debt.
United has long been trying to diversify from dial-up, acquiring social networking site Classmates.com and UAL Corp.'s MyPoints loyalty rewards program. The company said it planned to boost its e-commerce offerings by promoting flower sales on its websites.
If it completes the deal, which is expected to close in the third quarter, dial-up services would represent about a quarter of United Online's revenue.
Founded in 1910, FTD enables consumers to buy flowers and other related products over the Web or telephone from 45,000 member florists that sport the company's winged logo on their storefronts. The Downers Grove, Ill.-based company also delivers flowers wholesale to grocery stores and homes. Analysts questioned whether the Internet company's new strategy would come up roses.
Despite reporting better-than-expected preliminary first-quarter earnings, United Online's shares fell 15 cents to $10.68. FTD's shares gained 25 cents to $13.75.
"It's a strange match," said David Card, senior analyst at Jupiter Research. "But then again, people were wondering why they bought Classmates back then, and it's worked out."
United purchased Classmates, a social networking site that connects people who have been in school or the military together, for $100 million in 2004 and grew its member base to 50 million from 34 million, adding 1.8 million paid subscribers. It has increased the number of e-mailable MyPoints members by 39% since buying it from United Airlines' parent in 2006.
The company plans to use its Classmates and MyPoints properties to market FTD's services, Chief Executive Mark R. Goldston said in an interview. FTD has about 4 million active customers, Goldston said, while United Online's properties have more than 50 million users.
"What FTD lacks is marketing savvy and a powerful Internet segment to augment their florist network," Goldston said.
United Online valued the deal at $15.08 a share for FTD stockholders. Each FTD share will be exchanged for $7.34 in cash, 0.41 of a share of United Online common stock and $3.31 of bonds paying 13% interest.
United Online could help boost FTD's sales by using its websites and loyalty program to direct people to member florists, Goldston said. He said the companies fit together because the target consumer for MyPoints, Classmates and FTD were virtually the same: female, over age 35 and with an income of more than $50,000.
But Jefferies & Co. Managing Director Youssef Squali wrote in a research report that the deal wasn't as much about flowers as about moving away from dial-up Internet access.
The acquisition is "driven more by the need to scale and diversify away from the 'melting' access business than by a strategic fit," he wrote, adding that the purchase would look especially smart if United Online could lift FTD's revenue.
That's a tall order. FTD is losing market share in the $20-billion U.S. flower industry to 1-800-Flowers.com and other online providers, said Eric Beder, a senior vice president at New York investment bank Brean Murray, Carret & Co.
"In the long term, it's a decaying business," Beder said. He speculated that United Online was looking to use FTD's tens of millions of dollars in cash flow for more purchases.
Also Wednesday, United Online announced strong preliminary first-quarter results. It said it would report sales of $121 million to $121.8 million, up from the previous estimate of $116 million to $120 million. The company will release its first-quarter earnings Tuesday. But the company also said it would cut its dividend in half, to 10 cents, after the deal closed.