At This Point, IAC Offer Is A Good Outcome For Angie's List Holders

Following IAC/InterActiveCorp IAC's announcement concerning the reverse merger of its HomeAdvisor unit with Angie's List Inc ANGI, Loop Capital Markets hailed it as a good outcome for Angie shareholders at this point.

The Deal

Analyst Blake Harper noted that Angie's List and IAC's HomeAdvisor are combining to form a new publicly traded company called ANGI Homeservices Inc., with IAC offering Angie's shareholders $8.50 per share in cash for about 25 percent of outstanding shares. The remaining shares would be converted into the new company, the analyst noted.

Ideal Outcome

Loop Capital Markets said it does not see an alternative strategy for Angie's, given that the company had posted six consecutive quarters of sequential revenue declines and is poised to extend that streak to seven.

With the stock trading down 40 percent since late last year, when the firm had mooted a proposed combination between Angie's List and HomeAdvisor, the firm believes the potential for $8.50 per share in cash, a 44-percent premium to Monday's closing price, is an ideal outcome for shareholders now.

Cash Vs. Stock

The firm explained that the $130 million cash financing implied about 25 percent of Angie's shares being redeemed for cash. According to the firm, the remaining Angie's shares will be redeemed for one share each of the new ANGI Homeservices Class A shares.

The firm believes Angie shareholders will collectively own 10–13 percent of the new business, depending on the cash redemption and an even less percentage of the voting rights, as IAC will receive Class B shares with 10 votes per share, compared to one vote per share for Class A shares.

"We believe that long term investors looking for exposure to another consumer vertical (home services) moving online will be rewarded from the increased earnings power and category leadership of ANGI Homeservices," the firm said.

Meanwhile, the firm indicated that shareholders with shorter time horizons have a viable option with IAC's cash offer.

Rating Action

Loop downgraded shares of Angie's List to Hold from Buy and it trimmed its price target to $8.50 from $9, reflecting the cash offer price.

"We expect upside in the stock to be limited until after the deal closes in Q4, at which point we expect the combined ANGI Homeservices to be able to extend its cumulative lead in the online home services market," the firm noted.

"Combining Angie's List's brand, 5 million+ members, and 10 million+ reviews, with HomeAdvisor's industry leading technology products, transactional marketplace model, and strong service provider growth, along with strong management execution and cost synergies, should enable the combined company to achieve its targets for 5-year revenue CAGR of 20–25 percent and EBITDA margins ramping to 35 percent."

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