DG, which bills itself as an ad management provider, has entered into an agreement to sell its television ad delivery business to Extreme Reach, Inc. for $485 million. The proceeds will be used by DG to pay off all outstanding debt and fund the majority of a planned cash distribution to DG stockholders of at least $3 per share. In addition, DG stockholders will receive a distribution of shares of a company that will hold DG’s online business.
The New Online Company will emerge with almost all of DG’s working capital, including that attributed to both the online and television businesses. Total working capital for the television business alone at 6/30 was approximately $40 million, excluding cash, bringing the total economic value for the sale of the television business to $525 million.
A portion of the cash and working capital at closing will help fund the anticipated cash distribution to shareholders. The New Online Company’s initial capital structure is forecasted to have approximately $20 million of cash and $50-60 million of net working capital.
In addition, DG committed to provide a potential equity investment of $40 million cash in Extreme Reach (ER), if required, to close the transaction. If DG’s equity investment is ultimately required, at closing, ER will provide DG with $45 million of preferred stock with terms and conditions consistent with ER’s most recent offering.
If the $40 million investment is not required, ER will pay DG an additional $5 million in cash at closing and the incremental $45 million will then be available to fund stockholder distributions and working capital for The New Online Company.
Said DG Chairman Scott Ginsburg: “We are very pleased with the developments announced today. We believe these proposed transactions will provide DG shareholders with a significant cash distribution by monetizing DG’s television business, while providing shareholders a continued stake in the new online business. These transactions also allow the Company to repay all debt, strengthen our balance sheet and provide us with a more focused strategy to pursue opportunities in the emerging digital landscape.”
“By concentrating exclusively on the digital market, The New Online Company can be laser-focused on meeting the challenges facing marketers due to the massive fragmentation of technologies and audiences,” said Neil Nguyen, CEO and President of DG. “I am excited about the opportunity to build upon the past few quarters’ strong momentum. Our global footprint, market leading campaign management platform and analytics capabilities position us as a major player in the future of digital advertising.”
The transaction is expected to close Q1 2014 following DG stockholder approval and the expiration of the waiting period under the Hart-Scott-Rodino. Immediately prior to the merger, the outstanding DG shares will be partially redeemed for new shares of The New Online Company which are expected to be listed on NASDAQ.