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IAC/Interactivecorp: Debt Offering Increases Buyback Opportunity

 December 19, 2012 01:33 PM

IAC/InterActiveCorp (NASDAQ: IACI) has agreed to sell $500 million of 10-year high-yield bonds. Though, the company indicated that proceeds would be used for general corporate purposes, proceeds will most likely be used for stock repurchases, and not a large acquisition.

The company is selling $500 million principal amount of 4.75 percent senior notes due 2022. The notes will be guaranteed by certain subsidiaries of IAC, and the offering is expected to close on Dec. 21.

During the third quarter 2012, IAC repurchased 1.3 million common shares at an average price of $47.12 per share. As of Oct. 19, 2012, the company had 9.5 million shares remaining in its stock repurchase authorization.

[Related -The Best Of Three Tech Shorts]

As of Sept. 30, 2012, IAC had 88.4 million common and class B common shares outstanding, and had $640.7 million in cash, cash equivalents and marketable securities and $95.8 million in debt of which $15.8 million are short-term.

"If we assume a floor of $500M in cash, we view this as highly accretive to '14 and '15 non-GAAP EPS, by 5% and 12%, respectively. We see the company repurchasing $1.9B of stock during 2013-2015 (vs. our current $1.1B in buybacks and $345M in dividends, based on $1.5B in cumulative FCF)," Oppenheimer analyst Jason Helfstein said in a client note.

Buybacks provide meaningful upside to consensus estimates, and the above scenario assumes 5 percent accretion in 2014 and 12 percent boost to 2015 earnings view.

New York City-based IAC is a leading diversified operator of Internet businesses with over 46 sites and 35 brands. Key properties include Match.com, Ask.com, ServiceMagic.com, CityGrid, Vimeo and numerous emerging sites. Focused in the areas of Search, Match, Local and Media, IAC's family of websites is one of the largest in the world, with 1.2 billion monthly visits across more than 30 countries.

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"With IAC/InterActiveCorp's $6.16 net cash per share and our view that management sees few opportunities for meaningful acquisitions in its core verticals (search, local and personals), we expect the company to return capital to shareholders through aggressive buybacks or a special dividend," Helfstein said.

Meanwhile, the company's core businesses are within the secular growth areas of the Internet such as search, CPC, CPA and vertical lead generation. Longer term, if the company considers the IPO of Match.com, and the divestiture of other assets such as CityGrid or HomeAdvisor, there are significant upside potential.



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