J2 Global Drops $400M+ Carbonite Bid, Now Bids For Three Board Seats

Internet services developer J2 Global this week withdrew its bid to acquire cloud-based data protection and disaster recovery vendor Carbonite, but appears ready to continue its quest to acquire Carbonite with a move to appoint three members to Carbonite's board of directors.

J2 Global, which owns about 9.4 percent of Carbonite's shares, on Monday said in a statement that it had entered into a confidentiality agreement with Carbonite related to J2's previously announced plans to acquire Carbonite. J2 Global also said it is withdrawing its tender offer to purchase all outstanding shares of Carbonite's stock.

J2 Global followed up on Wednesday with a letter to Carbonite, referenced in a Carbonite SEC filing, saying it planned to nominate three candidates to Carbonite's board of directors. All three candidates are current members of J2 Global's board.

[Related: Carbonite Hires New CEO As It Grapples With Hostile Buyout Bid]

The J2 Global nominees are likely to continue to pursue Carbonite. In the J2 Global letter, the company wrote, "If elected, J2 expects that its nominees, while mindful of and subject to their fiduciary duties to the Issuer, will support the pursuit of the sale process through to its conclusion to the highest bidder."

Carbonite on Wednesday in a statement acknowledged the nominations, and also said that Engine Capital, which has about a 2.5 percent stake in Carbonite, also intends to nominate three members to the Carbonite board.

Carbonite has not yet set a date for its 2015 annual meeting.

The moves come after J2 Global launched a December bid to acquire Carbonite for $15 per share, a bid which valued Carbonite at $404 million. Two years prior to that, Carbonite fended off a previous bid by J2 Global.

J2 Global did not respond to a request for additional information.

J2 Global and its affiliates provide Internet services through its Business Cloud Services and Digital Media divisions. The Business Cloud Services division includes the eFax Internet fax service, eVoice virtual phone service, FuseMail hosted email service, Campaigner email marketing service, KeepItSafe online backup service, and Onebox unified communications and CRM service.

It is a profitable organization, with full-year 2014 revenue of $599 million, up 15 percent over 2013, and full-year 2014 GAAP earnings per share of $2.58, up 13.2 percent over 2013.

For all of 2014, Carbonite reported revenue of $122.6 million, up 14 percent over 2013. However, the company reported a GAAP loss of 9.4 million, or 35 cents per share, compared to a GAAP loss in 2013 of 10.6 million, or 41 cents per share.

Investors had been hoping Carbonite would accept J2 Global's December $15-per-share offer. The company's share prices jumped to $14.44 per share on December 3 from the previous close of $11.76, and on March 2 peaked at $15.30 per share before its Friday close of $14.60 per share.

Carbonite, which has transformed from a simple consumer-focused cloud backup application to a full data protection offering for businesses, has done very well over the years, said Ed Tatsch, president of ETS Networks, an Arden, N.C.-based provider of outsourced IT services and Carbonite partner.

Even when Carbonite's initial data protection appliance didn't work as well as promised, the company's response has Tatsch looking forward to working with its next version, he told CRN.

"Carbonite responded well to our needs," he said. "They not only made us whole for the problem, they gave us gratis licenses for their application. Carbonite worked hard to make me happy."

Appointing members to the Carbonite board of directors is a good next step for J2 Global's pursuit of Carbonite, Tatsch said. "Carbonite probably wants to talk more money," he said.

Tatsch has had good experiences from past moves by one vendor to acquire a vendor that partners with ETS Networks. He cited IT management software vendor SolarWinds' 2011 acquisition of DNS management software developer DNSstuff as an example of a successful acquisition where the acquired technology gets more opportunities to develop and grow.

"From what I saw of J2, it seems they want to invest in Carbonite, and not just wring out its customer list," he said. "The acquisition is too expensive. Over $400 million for a company with yearly revenue of just over $100 million. So I'd guess it's a good deal for Carbonite. And I'm willing to give them a year to make it work."

PUBLISHED MARCH 9, 2015