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Deal Leaves InfoSpace With the Dogpile

9/21/2007 8:00 PM Eastern

Natixis Bleichroeder Internet analyst Jeffrey Shelton raised his price target on InfoSpace stock to $18 from $15, after the Internet portal provider agreed to sell its online directory business for nearly double its estimated value.

In a research note, Shelton — who maintained his “hold” rating on the stock — wrote that InfoSpace agreed to sell the directory assets, including Switchboard.com, InfoSpace.com and Findit, to directory publisher Idearc for about $225 million. Shelton had previously valued the directory unit at $130 million, based on estimated cash flow of about $20 million and applying a 6.5 times multiple.

Idearc, a spinoff of Verizon, publishes that company’s print Yellow Pages directory and runs the online directory Superpages.com.

Shelton wrote that the deal, which is expected to close by the end of the year, represents an 11.5 times cash flow multiple. That translates into an upside of about $2.50 per InfoSpace share, Shelton wrote. An added bonus is that the company will be able to shield almost all taxes related to the sale by utilizing its net operating loss carryforwards, which he estimated could be as high as $70 million.

Shelton said that according to published reports, InfoSpace is close to selling its mobile infrastructure business to wireless technology company Motricity, which he estimated to be worth about $90 million. If that deal is consummated, InfoSpace would be left with its online search properties, consisting mainly of Dogpile.com, as well as significant white label distribution agreements.

September