InfoSpace to buy Switchboard for $170 million in cash
CBS MarketWatch
SAN FRANCISCO -- In a bid to capture a piece of the surge in yellow-page advertising on the Web, InfoSpace said Friday that has agreed to acquire Switchboard Inc. for $170 million in cash.
Shares of Switchboard soared 27 percent to $7.76 while InfoSpace jumped 14 percent to $36 in a week jam-packed Internet mergers.
As part of the deal, InfoSpace is paying Switchboard shareholders $7.75 per share, representing a 29 percent premium above Switchboard's market value before the deal was announced.
By taking control of the Switchboard.com site, InfoSpace said it would lay claim to 23 percent of online yellow-pages searches. Those searches come mostly from InfoSpace.com and Switchboard.com branded sites.
But they also come from InfoSpace's other sites, such as Dogpile and Metacrawler, or distribution partners like ABCNews.com.
The acquisition is expected to close July 1, and is estimated to add $10 million to $12 million in sales and $4 million to $5 million in cash flow in the second half of the year.
"It's complementary," said Brian McManus, InfoSpace executive vice president of strategy, in an interview.
InfoSpace and Switchboard both focus on building up their online distribution. Both generate an online audience from either their own branded sites or from other Web sites partners.
Both companies then rely on other companies to aggregate advertisers.
InfoSpace's distribution platform, made up of a network of sites, displays advertisements from Yahoo-owned Overture, Google and FindWhat.com. It also provides yellow page advertisements from Verizon , the nationwide phone operator with a huge local sales force out on the street getting tiny merchants to place their advertisements in those big fat yellow pages books.
Another similarity between InfoSpace and Switchboard is that both companies have technology to offer private-label solutions. For instance, Switchboard powers Time Warner's AOL's yellow pages.
While InfoSpace gets bigger with Switchboard, the winner of this race remains to be unknown.
Verizon dominates the yellow page business in the print world because it has both a nationwide footprint and a sales force. Verizon is also aggressively positioning its Superpages.com as the nationwide site for local information.
At the moment, an estimated $450 million in local advertisements were placed on the Web in 2003, according to The Kelsey Group. That number is expected to grow 25 percent annually and make up 30 percent of the total $15 billion in yellow page advertising.
Meanwhile, Yahoo and Google have turned on the heat by launching their own local initiatives. Yahoo unveiled Smartview - a site that incorporates maps and listings dynamically while Google is beginning to list several local listings at the top of its search-results pages for any search that specifies a location. For instance, someone typing in "Plumbers in Sag Harbor" will see a link at the top of the results search page for local plumbers in that town.
The question becomes: Will local merchants prefer to put their dollars onto destination sites that are branded as the next-generation yellow pages? Or will local advertisers like having their ads displayed on a network of sites?
McManus said both options make sense for advertisers.
Accordingly, InfoSpace will focus on building up its brands as destination sites but will also continue to work on distribution through its partners.
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