InfoSpace sells mobile biz

According to Motricity, a Durham, N.C., provider of mobile content delivery technology, financier Carl Icahn and Chicago investment bank Advanced Equities Inc., two of the company's chief investors, led the funding for the transaction.

In an interview, Motricity chairman and CEO Ryan Wuerch said the company is set to announce that it has raised an additional $185 million in private capital, $135 million of which will go toward buying the InfoSpace unit.

Motricity's other investors include Technology Crossover Ventures, New Enterprise Associates, Noro-Moseley Partners and Intel Capital. In March, Icahn invested $50 million in Motricity, bringing the total raised by the company to $220 million.

Following closure of the deal with Motricity, InfoSpace said it expects to return a signification portion of the net proceeds from the sale to shareholders in a special cash distribution.

Wuerch said he approached InfoSpace about the deal, noting that the Bellevue, Wash., search company was not shopping its mobile services division. "It's a transaction that I have been working toward for almost two years," he said.

The unit, which provides managed services infrastructure for wireless carriers, will strengthen Motricity's technology and enable it to pursue larger customers, Wuerch added.

Steve Elfman, executive vice president of InfoSpace's mobile services business unit, will join Motricity as president.

The acquisition will expand Motricity's customer base with 11 of the top 13 wireless telecommunications carriers in North America, including AT&T Inc., Verizon Wireless and Sprint Nextel Corp.

For InfoSpace, the transaction allows the company to concentrate on its largest, and now only, business of providing technology that searches other search engines. Although the company has not played up its change in strategy, chief financial officer Allen Hsieh said in an interview that InfoSpace wants to focus on its "metasearch" business. "We've always talked about looking at various alternatives for the company," he said.

Hsieh noted that InfoSpace is selling the unit for roughly 2.5 times its current sales, saying that the deal will help InfoSpace "unlock shareholder value."

In mid-September, the company sold its Switchboard.com online directory and related assets to Idearc Inc., owner of Superpages.com and publisher of the Verizon Yellow Pages, for $225 million. InfoSpace said the sale was part of an ongoing strategic review by the company.

InfoSpace has also made significant operational changes in the last year. In September 2006, the company said that a major carrier customer, which accounted for about 80% of InfoSpace's 2006 mobile segment revenues, would no longer use the company's services and instead contract directly with music labels.

A month later, InfoSpace announced a restructuring plan aimed at boosting the company's financial performance. The company said it would cut 250 jobs and take related restructuring charges due to severance costs.

InfoSpace's revenues for the second quarter were $70.5 million, a $25.3 million decrease over the year-ago quarter. The company attributed $19 million of this decline to its exiting the mobile media business. InfoSpace recorded a net loss for the second quarter of $28.1 million, compared with net income of $1 million in the year-ago period.

"The company is truly looking to align itself in areas of growth where it can have a strong presence," said Maurice McKen- zie, an equity analyst with Signal Hill Group LLC, of InfoSpace's move to divest assets.

InfoSpace shares closed at $19.78, up 9.1%.

Credit Suisse Group advised InfoSpace, and Wilson Sonsini Goodrich & Rosati PC provided counsel. Motricity got financial advice from Steve Bottum and Andy Livadariu of Savvian LLC and legal advice from Kirkland & Ellis LLP's Mark Director, Bill Sorabella and Dan Michaels and Boult, Cummings, Conners & Berry plc's Scott Haynes and Chris Sloane.