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Acxiom to Divest AMS to Interpublic Group for $2.3 Billion

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Acxiom Corporation has recently inked a deal with Interpublic Group (IPG) to divest its Acxiom Marketing Solutions segment (“AMS”). The company anticipates receiving $2.3 billion in cash for the deal. The transaction is subject to regulatory clearance and projected to close in third quarter of fiscal 2019.

After addressing shareholder’s approvals, Acxiom anticipates to report the AMS segment results under discontinued operations. Post sell-off, the company will change its brand name to LiveRamp and start trading under the new ticker “RAMP”. The company’s headquarter will shift from Little Rock, AR, to San Francisco, CA. However, the current CEO and CFO will continue in their respective positions.

Acxiom has been devising methods to maximize the output of its AMS segment. A thorough examination led to the confirmation of the proposed deal. The deal marks an expanded relationship between IPG and LiveRamp. The company now aims to focus on its "LiveRamp" segment which is registering impressive growth and gaining traction.

“This deal returns significant capital to shareholders, and at the same time, allows us to invest in LiveRamp’s industry-leading capabilities, technology and market opportunities,” said CFO Warren Jenson.

How Acxiom Proposes to Utilize the Big Amount?

Acxiom expects net cash proceeds of $1.7 billion, after deduction of taxes and fees. The company plans to be debt-free after paying $230 million for its existing debt.

The cash amount will also enable Acxiom to accelerate and expand ongoing share repurchase program. The company is looking forward to commence a cash tender offer worth $500 million for its common stock. The company will add $500 million to its share repurchase authorization and extend the program to Dec 31, 2020.

The company expects to utilize the remaining proceeds to finance growth initiatives, including strategic acquisition opportunities and other cash needs.

Price Movement

Acxiom’s move was welcomed by the market. Following the news, shares of the company were up 14.2%, yesterday. Notably, Acxiom’s stock has returned 24.1% year to date, outperforming the industry’s rally of 15.4%.

Restructuring Related Developments

In the third quarter of fiscal 2018, Acxiom had announced plans to realign portfolio into two distinct business units — LiveRamp and AMS — from fiscal 2019. Beginning first-quarter fiscal 2019, the company will report results under the realigned business units.

LiveRamp will comprise integrations which will include television, Data Store, SaaS and DaaS services. Meanwhile, AMS will comprise Acxiom Data, database services, consulting and analytics and other services.

In first-quarter fiscal 2019, LiveRamp revenue is anticipated to be up 25-30% driven by growth in subscription, which is anticipated to generate 80% of segment’s revenues. However, the projected growth rate is lower than 43% segmental growth reported in fiscal 2018. Transactional revenues are anticipated to account 20% of segment revenues and grow in the low-single digits range considering the impact of decline pertaining to Facebook (FB - Free Report) in Data Store revenues. Excluding Facebook, the segment is anticipated to be up 37%, down from year-ago growth of 47%.

AMS segment revenues are anticipated to be down low-single digits. Excluding Facebook, the segment is anticipated to be up low-single digits.

Growth in LiveRamp Revenues: Key Catalyst

Axciom had acquired LiveRamp for approximately $310 millionin 2014.We feel the recent divestiture will further enhance the company’s ability to curb operating expenses and generate solid bottom-line growth along with greater financial flexibility. In the fourth-quarter fiscal 2018 results, revenues in the Marketing Services segment (accounted for 40.4% of total revenues) rose 5.3% year over year to $99 million, while LiveRamp revenues surged 32% year over year.

This impressive growth trend bodes well for Acxiom. We believe reinforcing focus on LiveRamp segment holds promise in the longer haul.

Zacks Rank & Key Picks

Acxiom currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector are Seagate (STX - Free Report) and Mellanox , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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