Donuts Makes $70 Million Offer for Rightside's New gTLDs

Donuts Makes $70 Million Offer for Rightside’s New gTLDs

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A press release just hit the wires that I think most in the domain name industry will find interesting. In it, Donuts outlines an offer it made to acquire Rightside’s new gTLD extensions, and it includes a letter the company sent to Rightside CEO Taryn Naidu. I would imagine this was made public because Rightside is a publicly traded company on the Nasdaq market (ticker symbol: NAME).

According to the press release that I shared below, Donuts offered $70 million to buy all of Rightside’s new domain name extensions:

“Donuts Inc., the world’s largest operator of new domain name extensions, today publicly announced its interest in acquiring Rightside Group, Ltd.’s entire registry of generic top-level domains (gTLDs, also known as domain extensions) and related assets for $70 million in an all-cash deal.”

Wow.

Earlier this year, Daniel Negari made a public $5 million offer to Rightside to acquire four of its extensions. The offer, which was published on the CEO.XYZ blog, was made to acquire .Army, .Dance, .Dentist and .Vet. This offer was swiftly rejected by Rightside.

According to Rightside’s website, the company operates a “growing portfolio of over 30 Top Level Domains.” It looks like nTLDStats.com shows that Rightside has 40 extensions, but I am not sure if that number includes extensions in which they may have partial ownership stakes that might not be included in Donuts’ public offer.

According to Yahoo Finance, as of 10am this morning, Rightside has a market cap of $166.66M and is trading at $8.68/share. The stock is down on the day, although it is likely related to much of the market being down due to the Brexit vote.

Here is the press release announcing the offer. This is going to be interesting to follow:

BELLEVUE, Wash., June 24, 2016 /PRNewswire/ — Donuts Inc., the world’s largest operator of new domain name extensions, today publicly announced its interest in acquiring Rightside Group, Ltd.’s entire registry of generic top-level domains (gTLDs, also known as domain extensions) and related assets for $70 million in an all-cash deal. Donuts believes that this potential transaction presents a strong strategic opportunity to bolster Donuts’ industry-leading gTLD portfolio and is compelling for Rightside and its investors. Donuts previously expressed its interest to Rightside relating to a potential acquisition for these assets but Rightside has repeatedly disregarded the offer.

This move is in keeping with Donuts’ stated strategy of expanding its selection of not-com domain extensions, such as .movie, .LTD, .agency, .email, .school, .group, and many more, each providing a more descriptive and creative means for big brands, entrepreneurs, and dreamers alike to brand their businesses, products and services. Donuts already leads the industry, having secured 196 domain extensions, and is best positioned to market these assets by driving industry consolidation.

Donuts’ Acquisition of Rightside’s Registry Business – A Win for All Parties

Separating Rightside’s registry and registrar businesses is the best approach to unlocking value in both businesses, providing Rightside with substantial capital for investor liquidity and the optionality to invest in and grow its core registrar businesses.
The proposed acquisition complements Donuts’ current portfolio and expands the range of domains and related services that Donuts can offer, further enhancing what is already the greatest portfolio of domain extensions.
Donuts is the optimal acquirer for Rightside’s registry business given Donuts’ leadership in the marketplace, the parties’ long-standing business relationship, our shared technology platform, and regulatory considerations, all of which ensure the highest certainty of deal closure.
About Donuts

Donuts securely operates the largest number of the Internet’s top-level domain names and provides varied and relevant online identities, in multiple languages and character sets, to businesses, individuals, and organizations worldwide. Donuts is headquartered in Bellevue, Washington, with offices in Los Angeles, Chicago, Washington, D.C. and London. For more information, please visit www.donuts.domains.

Forward Looking Statement

Certain statements in this press release are “forward-looking statements.” Words indicating future events, performance, results and actions, such as “will” and “believe,” and variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that a statement is not forward-looking. The forward-looking statements in this press release include, among others, statements regarding interactions with and actions relating to investors and execution of business strategies. Forward-looking statements are not guarantees of future actions, events or performance, which may vary materially from those expressed or implied in such statements.

Letter to Rightside regarding Registry Transaction

The text of a letter sent to the Chief Executive Officer of Rightside on June 24, 2016:

Rightside Group, Ltd.
Board of Directors
c/o Taryn Naidu
5808 Lake Washington Blvd. NE, Suite 300
Kirkland, WA 98033

Dear Taryn:

Following due consideration, we have concluded that it is in the best interest of both Donuts Inc. (“Donuts”) and the investors of Rightside Group, Ltd. (“Rightside”) that Donuts should publicly present our interest in acquiring Rightside’s entire generic top-level domain (“gTLD”) portfolio and related assets (the “Transaction”). To date, we have expressed our interest in the Transaction in a May 26, 2016 letter to Rightside’s Board of Directors and have spoken to you and another member of Rightside’s Board of Directors directly, but have been repeatedly denied a broader conversation with your Board.

Our proposal represents an undeniably compelling case for all parties involved. For Donuts, Rightside’s collection of gTLDs complements Donuts’ current business and expands the range of domains and related services we can offer, bolstering what is already the greatest range of “not-com” options and economies of scale in the registry market today. For Rightside and its investors, separating Rightside’s registry and registrar businesses would unlock substantial value for both businesses by, among other things, allowing each to focus on their strengths and avoiding channel conflict. We firmly believe that Donuts offers Rightside a differentiated ability to consummate the Transaction in an efficient manner and with an exceptionally high level of certainty.

We note that our all-cash offer of $70 million represents approximately 40% of Rightside’s current market capitalization to acquire assets that contribute approximately 5% of its revenue. We believe strongly in the value of those assets, which we trust will appreciate substantially in Donuts’ consolidated portfolio and business model. But we have an equal amount of conviction that Rightside’s registry portfolio’s full value will go unrealized as long as it remains conjoined to your registrar businesses. Correspondingly, we believe the valuation of Rightside’s registrar businesses are also constrained under your current operating model. A separation of the registry and registrar assets will unlock stockholder value and allow you to focus on your core business, which is generating approximately $200 million in annual sales.

We believe Rightside would do best for its stockholders to acknowledge that our case is sound and work with us to enter into the Transaction. The overwhelming evidence validates the Transaction’s merits; enterprises of your size operating both registry and registrar businesses under “vertically integrated” models have poor track records of performance due to, among other things, inherent and inimical channel and supplier conflicts. For example, Rightside earns approximately 20% of its registry’s revenue from just one of its registrar’s competitors, GoDaddy Inc., and pays approximately 43% of your registrar’s revenue to just one of your registry’s competitors, VeriSign, Inc. Rightside’s recent performance, and the similar struggles Minds + Machines Group Limited encountered while employing the same basic model, underscore the problems with vertical integration in this space. Rightside and its investors should note the improved financial performance that Minds + Machines has enjoyed following abandonment of that model in favor of operating as a pure-play business.

We remain convinced that this is a deal that represents the best possible outcome for all involved. Unfortunately, the merits of our proposal have not, to date, been appropriately discussed or considered. Donuts is the leader in the new gTLD industry, we fully understand the business we seek to acquire, and we believe we can offer unrivaled certainty and efficiency to consummate the proposed transaction due to, among other things, our geographic proximity and the shared DNA between our two companies. We trust that you will give this proposal the full consideration it deserves and seek the counsel of your investors in doing so. Time remains of the essence. While this $70 million proposal is non-binding, Donuts has the cash to consummate the Transaction but is considering other strategic objectives in parallel. Therefore, we look forward to discussing this opportunity for mutual benefit with you and your Board within two weeks.

Very truly yours,

Paul Stahura

cc: Donuts Inc. Board of Directors
David Rostov, Donuts Inc. CFO
Alvaro Alvarez, Donuts Inc. SVP, General Counsel and Secretary
Tim Favia, Donuts Inc. VP, Corporate Development

SOURCE Donuts Inc.


About The Author: Elliot Silver is an Internet entrepreneur and publisher of DomainInvesting.com. Elliot is also the founder and President of Top Notch Domains, LLC, a company that has sold seven figures worth of domain names in the last five years. Please read the DomainInvesting.com Terms of Use page for additional information about the publisher, website comment policy, disclosures, and conflicts of interest.


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Comments (5)

    Francois

    Taryn, don’t sell !!!

    June 24th, 2016 at 10:10 am

    Meyer

    A number of interesting ironies in this proposal.

    June 24th, 2016 at 10:56 am

    Kevin

    That’s a lot of donuts $$$$$$$ ….

    June 24th, 2016 at 11:33 am

    Forrest

    Why would a company give up so much valuable money for something so, well, um… not so valuable? Only a matter of time before the new gtlds join the other great new extensions such as .mobi, .travel, .name, .tel and more.

    June 24th, 2016 at 1:28 pm
    June 25th, 2016 at 10:07 pm

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