Two potential strategic acquirers, including Hot Topic, Inc., have submitted competing bids for GeekNet, the publicly traded online retailer that owns ThinkGeek. Hot Topic and GeekNet announced last Tuesday, May 26, that they had signed a definitive agreement for Hot Top to acquire GeekNet for $17.50 a share, or around $122 million, including $37 million in cash and cash equivalents. The price was more than double the GeekNet’s stock price of $7.90 at the close on Friday. Around 21% of GeekNet’s shares had been committed to the deal, according to the announcement.
A second offer, this one for $20 a share, came in on Wednesday. The potential acquirer was not identified except as a “strategic acquirer,” which means that it’s also engaged in a business related to ThinkGeek, as opposed to an investment firm or other financial acquirer.
On Friday, GeekNet’s board announced that it had determined that the new offer was superior, and that Hot Topic had until Monday a.m. to submit a counter-offer. The second offer remains open until Tuesday.
Meanwhile, shareholder litigation mills started to announce lawsuits against Hot Topic for accepting the first offer even before the second offer materialized, and continued through the week.
ThinkGeek retails licensed products that it creates (e.g., an R2-D2 USB Car Charger, $39.99), unlicensed products that it creates (e.g., Leather Executive Bag of Holding, for tabletop gaming supplies, $149.99 MSRP) exclusive products (e.g., an exclusive Neal Adam variant cover edition of Marvel’s Secret Wars #1), and non-exclusive licensed and non-licensed apparel, electronics, and other products.
The company generated $140.7 million in revenues in 2014, $111.6 million through its website and the rest through wholesale sale of its products. It lost $8.3 million in 2014, down from a $234,000 loss in 2013 and a profit of $13.9 million in 2012, on increasing sales. Its balance sheet appears strong, with cash and cash equivalents more than $30 million greater than its total liabilities at the end of 2014.
Both offers are obviously valuing the company at far over what the stock market was a couple of weeks ago, so good for shareholders. And the most recent offer values the company at nearly 1X sales, a pretty aggressive valuation for a retailer that showed only a 17% gross margin in 2014.
Who is this unidentified potential strategic acquirer, and who will end up owning one of the biggest online retailers of geek merchandise out there?
