InfoSpace to sell online directory business to Idearc

By Sudipto Ganguly

BANGALORE (Reuters) - InfoSpace Inc (INSP.O) said it agreed to sell its online directory business, including Switchboard.com, to Yellow-pages directories publisher Idearc Inc IAR.N for $225 million in cash.

Shares of InfoSpace were up almost 29 percent at $17.04 in late afternoon trade on the Nasdaq. They had lost about a half of their value since touching a year-high of $27.76 in April before Monday's gains.

The sale comes amidst takeover talk that InfoSpace, which has been restructuring its business since late last year, could be bought by a privately held Spanish mobile-phone content provider. Analysts also expect the company could sell its Mobile business to privately held Motricity.

InfoSpace Chief Executive Jim Voelker refused to comment on the speculation.

After the close of the online directory business sale, expected by the end of 2007, InfoSpace expects to return the net proceeds to shareholders as a special dividend.

Earlier this year, the company had committed to pay a special cash dividend of about $200 million in total to its shareholders.

"What we did here was pick an asset that really the market was not valuing at all and turned it into real cash," Bellevue, Washington-based InfoSpace's CEO Voelker said by phone.

The sale is expected to increase InfoSpace cash balance above $400 million. The online directory business helps Internet users find U.S. merchants and individuals in North America through its branded Web sites, such as Switchboard.com and InfoSpace.com.

The 47 employees in the directory business are going to be offered jobs in Idearc, Voelker said.

The company is hoping to provide a new outlook in October during its earnings meeting, Voelker added.

The online directory business contributed about $17 million to the company's first-half 2007 revenue of about $157 million.

COULD MOBILE GO?

"We continue to believe InfoSpace will sell its Mobile assets, with Motricity as a likely buyer, in a deal that makes sense for both parties," Wedbush Morgan analyst Scott Sutherland said in a note. Sutherland raised his price target to $22 from $19 on the stock and reiterated his "buy" rating.

Needham & Co analyst Mark May said in a research note on Friday that a sale of the Mobile division would streamline InfoSpace's business, improve profitability, and bring in cash that could be used to strengthen the company's Online division and to buy back stock.

CEO Voelker said, "The mobile business is still slightly in its early stage. We expect it to be profitable in the last part of the year."