MEDIA REPORTER
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When Jason DeZwirek's phone began to ring over the past several months, the chief executive officer of Kaboose Inc. KAB knew the end was near for the small-but-growing online media company he founded a decade ago.
The slowing economy had caused a sharp decline in Kaboose's advertising revenue, which dragged the shares down with it. Several buyers were now circling the business, which carved out a niche for itself in websites designed for children and moms.
In a pair of deals announced yesterday, Toronto-based Kaboose accepted offers from Walt Disney Co. DIS and U.K. private equity firm Barclays Private Equity Ltd. to sell its assets for a combined $120.3-million.
The sale will see Disney acquire Kaboose's North American assets, which include popular websites such as BabyZone.com and AmazingMoms.com, for $23.3-million. Barclays, the private equity arm of Barclays Bank PLC, is buying Kaboose's U.K. business, the parenting club Bounty Group Ltd., for $97-million.
Though carrying very little debt, Kaboose found itself in a crunch nonetheless as its access to capital dried up as the stock market slumped. Two years ago, the company's shares were trading just under $4, but have traded at less than 50 cents for most of this year. Once a darling of investors who pegged Kaboose to evolve into a significant online player in the future, Mr. DeZwirek figured the smartest thing to do was to sell.
"It's tough for me," he said. "I look at it a year and a half or two years ago, and I think about what the stock price was. But you kind of have to get over it, because it is a new world and you have to be realistic. You have to say, 'okay within this new world, what can we achieve?' "
The deals value Kaboose at 65 cents a share, a 70-per-cent premium on the average closing price over the previous month on the Toronto Stock Exchange. Mr. DeZwirek, who holds a 12.5-per-cent stake, said several companies were involved in the talks and he doesn't expect a higher bid.
For Disney, it is the second significant acquisition of a Canadian online media company in the past two years, after it bought the popular children's social networking site, Club Penguin, based in Kelowna, B.C., for $350-million in 2007.
Paul Yanover, executive vice-president at Disney Online, and a native of Hamilton, said his company noticed Kaboose in recent years as it grew.
"Certainly innovation is alive and well in Canada, and I think both of these companies are a testament to that," Mr. Yanover said of Kaboose and Club Penguin. Though the drop in Kaboose's market value made the price tag attractive, it wasn't the primary reason for the deal, he said.
"The economic conditions are going to change over time, and they're going to potentially make some things more attractive from a pure valuation standpoint, but fundamentally we're going to evaluate [acquisitions]based on the product itself," Mr. Yanover said.
Yesterday, Kaboose announced a fourth quarter loss of $65.1-million, compared with a year-ago profit of $1.73-million. The change was a result of a $65.5-million goodwill writedown. Revenue doubled to $21.5-million.
Kaboose Inc. (KAB)
Close: 57¢, up 14¢
Grant Robertson