InfoGroup an acquisition target?

InfoGroup Inc., whose officers last December turned aside a suggestion that they sell the company, is being talked about as an acquisition target.

The Omaha marketing and business research company, formerly called InfoUSA, is a “prime acquisition candidate,” said an analyst who studies the company for Stephens Inc., a Little Rock, Ark., investment banking firm that does business with InfoGroup.

Meanwhile, company founder Vin Gupta is selling large blocks of stock. It was Gupta who last year made the suggestion to sell. He also said he was exploring another bid to take the company private himself.

Carter Malloy, the Stephens analyst, said in a research letter last spring that he had spent a “good amount of time” with the company's management and that there was a “reasonably high probability that the business will be acquired.”

He said in an Aug. 4 letter than he continued to believe in the likelihood of an acquisition.

InfoGroup officials declined to comment.

“Our policy is not to comment on market rumors,” spokeswoman Lisa Olson said.

Malloy's first report came out April 27, four months after the company said the recession and tight capital markets made it a “challenging time” to try to sell. The company's statement was in response to Gupta's suggestion that a sale be considered.

Malloy listed seven companies as potential buyers. One of them was Experian Group, an international consumer and business credit reporting and marketing services company.

InfoGroup recently announced an agreement with Experian whereby it would be a re-seller of some InfoGroup services.

InfoGroup gathers information about individuals and companies and sells it to businesses for marketing purposes. Google something and you may bring up information gathered by InfoGroup.

InfoGroup's Opinion Research unit polls for CNN and others.

Malloy said the company could be sold to a strategic buyer, a financial one or both. A strategic buyer would be another company in a similar business or one trying to broaden itself. A financial buyer would be an investment firm.

Vector Capital of San Francisco made a buyout bid in January, offering $7 a share on a day InfoGroup stock closed at $3.99.

A Vector executive declined to discuss the bid or say whether InfoGroup responded to it.

Despite being the company's biggest shareholder, Gupta's role in the company's operations and its future is limited. A standstill agreement reached as part of a lawsuit settlement kept him from acquiring more InfoGroup's stock earlier this year.

That agreement expired in July. However, a poison-pill rule adopted by the board of directors two months earlier, without specifically naming Gupta, keeps him from making a hostile bid to buy enough shares to take control of the company.

The poison-pill provision runs for 10 years.

Outside of rare statements such as his December call for the company to be sold, Gupta has not talked publicly about InfoGroup since 2007, before a special board committee was named to handle a shareholder lawsuit and a Securities and Exchange Commission investigation.

“I've been muzzled,” he said then.

The suit, brought by investment funds Cardinal Capital Management and Dolphin Funds, accused Gupta of diverting company funds to buy or lease homes, corporate aircraft, cars and a yacht for use by him, his family members and others including Bill and Hillary Clinton.

The plaintiffs claimed Gupta dominated a compliant board that failed to rein him in.

Gupta defended the spending as business-related. For example, he said hiring former President Clinton as a consultant generated sales many times the cost of the consulting fee.

The suit was settled in August 2008 with the result that Gupta, who founded the company in the 1970s, was removed as board chairman and CEO.

An SEC investigation continues. The company also has said the Internal Revenue Service is examining recent tax returns.

Gupta's recent sale of stock included 200,600 shares Aug. 24 and 25 at prices ranging from $6.76 to $6.86. At the lower price that would have translated to $1.36 million.

After that sale, Gupta held nearly 21 million shares, 36.4 percent of the company's outstanding stock. At the end of 2006, he owned more than 23 million shares, or 41 percent of the outstanding stock.

Gupta has said that most of his resources are tied up in the company he founded. In late 2007. he said his $230 million in company stock represented 90 percent of his net worth.

So his reasons for selling could include a need for cash.

Gupta no longer receives a salary as CEO.

InfoGroup board voted in January to suspend the dividend.

Based on his stock ownership, Gupta received about $8 million in dividends in 2008.

Malloy's report noted Gupta's “newfound willingness to sell” as one of the things that makes InfoGroup a prime acquisition candidate. Malloy also cited the “attractiveness of the company's core data and digital marketing assets.”

The company's sale of its Macro International research division and use of the proceeds to reduce debt by $93 million was a clear move to “clean up the balance sheet” and make InfoGroup more saleable, Malloy wrote.

Improving the balance sheet is a common move prior to putting a company up for sale.

Malloy recommends the stock as a buy, based on the likelihood of an acquisition.

His Aug. 4 report set a target price of $9. InfoGroup stock rose 6 cents Wednesday to close at $6.24.