Call it Wall Street's version of
Let's Make a Deal.
Munder NetNet, the price may all of a sudden look very right.
The $8.5 billion fund purchased $30 million of restricted shares of online investment-research provider
, Multex.com announced Thursday. And here's an interesting twist: Munder paid a premium to the stock's 23 7/16 Wednesday close.
"The trend is typically to buy the shares at a discount, not premium," said Multex.com Chief Financial Officer John McGovern. "We're very pleased with it." A Multex.com official said the deal's price was fixed, but neither Multex.com nor Munder would disclose the price.
What's even more interesting is that shares of Multex.com soared 25% to 29 1/4 Thursday, thanks to Multex.com's bang-up quarterly results that beat the Street, as well as the news of the Munder private placement. The timing of the two announcements and the stock's startling run-up is striking, and it may have turned the fund's premium into a discount within hours.
Should the timing of the two announcements raise concerns? "It's a legitimate question," said Jeff Runfeldt, an analyst at
Dain Rauscher Wessels
, which has done underwriting for Multex.com.
One analyst has a bold hypothesis for why the fund would pay a premium: "Access to information. Maybe they were privy to the operating results that came out today," said Scott Appleby, senior e-finance analyst with
, which also has done underwriting for Multex.com.
Both Multex.com and Munder officials adamantly rejected this notion. Scott Appledorn, co-manager of the NetNet fund, said: "Our discussions with them date back long before the earnings announcement. They never offered any information about their results, and we never asked for any."
Appledorn explained that the fund's management team paid a premium because it thinks the price it set is lower than the stock's true value and that the fund would have ended up paying more if it tried to buy that much of the thinly traded stock on the market.
Multex.com's McGovern, for his part, said: "There's absolutely no correlation between the two announcements. They had absolutely no idea the
company's earnings would be this good. One of the concerns we had with announcing them together was that there would be speculation, but there should be none. We put them out together to get the most media attention possible."
The deal, expected to close by July 31, is the latest in a growing trend of private stock deals struck by big mutual funds -- NetNet is far and away the largest Internet fund and closed to new investors in April. Fed up with the hassle of trying to buy big chunks of stock without sending prices way up, more and more funds are buying directly from companies in private deals. But this deal breaks with other private deals on the matter of price.
Funds usually get the shares at discount in deals like this one because Munder bought restricted, or unregistered, shares, which are not as liquid, or easily sold, as common shares. Munder NetNet, for instance, will have to hold on to the shares for at least a year, said McGovern.
Even if the deal involves common shares, funds usually get a sweetheart deal because companies are eager to have another large institutional shareholder that, rightly or wrongly, is seen as less likely to churn shares than the active trading set.
paid $12 a share in a private deal for 3.9 million new shares of
when the company's stock traded at 16. Thursday afternoon the stock was trading above 37.
Appledorn says this isn't Munder NetNet's first foray into private-placement deals.
Before the deal, the broker-sold NetNet fund owned 1.7% of Multex.com as of May 31, according to
. Multex.com and Munder officials say the fund's stake will still be below 5% when the deal closes. Having a stake of less than 5% means the fund won't have to disclose as much about the deal and its stake in the company.
With Multex.com's stock well off its 52-week high of 39 7/16 and sporting a modest 200,000 daily trading volume, the deal may be the easiest and cheapest way to quickly build up a more than 1 million-share position. "The alternative to paying the premium was to buy it on the open market. Obviously in their opinion that wasn't doable," said Philadelphia fund consultant Burt Greenwald.
In light of the stock's run-up, it could be good for Munder NetNet's shareholders, too, as long as the fund comes out ahead in 12 months, the amount of time the fund is required to hold the stock under the terms of the deal.
Investors should keep in mind that private deals -- even those with discounts -- aren't a sure thing. A month before Janus participated in the NPS deal, Janus
gulped down $930 million of online health care shop
for $62 a share, some $8 lower than the stock traded the day the deal was announced. On Thursday the stock traded a bit above 15, making the firm's $930 million worth less than $230 million. Despite that scalding bath, Janus
plans to cut more private deals in the future.
Munder NetNet investors shouldn't be too concerned since $30 million, while a lot of money, represents less than 4% of the fund's assets. The deal probably vaults Multex.com into the fund's top-10 holdings.
After posting a 176% return last year, the NetNet fund is down 6.2% this year, trailing the
and more than 80% of its tech-fund peers, according to Morningstar.