FTD, FTD.com Will Merge, Hope to Make Stock Bloom

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Sometimes it is not enough to report six consecutive quarters of revenue growth and profitability -- the investment community just is not listening. Ask FTD.com.

The online florist reported record St. Valentine's Day sales, in common with rivals 1-800-FLOWERS.com and Proflowers.com. Yet the positive news did not move the needle for Wall Street, much to the frustration of Michael Soenen, president/CEO of FTD.com.

"We've been unable to increase liquidity on the trading volume in our stock," Soenen said in a conference call. "We've worked very diligently to generate sell-side research, but have been unable to do so."

And so, FTD.com has decided to merge with IOS Brands Corp., parent of Florists' Transworld Delivery, also known as FTD. Founded in 1910, FTD is the world's oldest florist organization, linking 20,000 florists in the United States and Canada and another 28,000 in 154 countries.

The merger will combine FTD.com and FTD, which already owns 83 percent of its sibling and 98 percent of the voting power.

"Generally we had to realize that we're just too small a company to be able to move forward without some type of transaction that would get a larger earnings and revenue base, or more diversified earnings and revenue base, and that will allow us to have greater flexibility with the capital market," Soenen said.

That realization is ironic.

Last year, FTD and FTD.com's combined revenue was $308 million. Of that, FTD.com accounted for 38 percent. Even in earnings, FTD.com accounted for 25 percent of the $36 million recorded last year by both entities.

Still, the FTD.com share -- EFTD ticker symbol -- dove from a 52-week high of $9.21 to $5.28 yesterday. An FTD spokesman said executives from the company were unavailable for comment.

But from what is public, FTD.com and FTD hope the merger solidifies their position in the flower delivery business.

"The relationship between their bricks-and-mortar history and the solidity of that side of the company will make FTD stronger and give it a better basis by which to grow in the marketplace," said Geri Spieler, research director at Gartner Inc.'s G2 division.

Besides, Spieler said, "it's a strategy that works, taking, for example, the online grocery model that didn't work for Webvan but did work for bricks-and-mortar companies like Safeway and Albertson's."

The merger itself brings FTD's business-to-business strengths and FTD.com's business-to-consumer experience. The combined entity will bank on the worldwide network of florists who accept via 1-800-SEND FTD and the Internet delivery orders for flowers and gifts.

Once the merger is completed, investors who own 17 percent of FTD.com will have a 12.7 percent interest, or 8.2 million shares of IOS' stock. In all, there will be 64.3 million IOS shares outstanding in the market.

The merger is expected to close in the second quarter. FTD, as the majority shareholder, already has voted in favor. But the minority investors also will be asked to sign off on the deal, though that is not required, according to FTD.

After unification, IOS will change its name to FTD Inc. It will trade on Nasdaq under the FTDI symbol.

Bob Morton, chairman and president/CEO of IOS and FTD, while not specifying how, said during a conference call that the merger will encourage creativity.

"We'll have a much more flexible structure that will allow us to fully develop the FTD brand across all merchandising categories," he said.


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