Answers Corp. (NASDAQ: ANSW) stock got smashed on Friday, dropping more than 23%. The company that via Answers.com provides users with answer-based search services and also operates Wikianswers.com, which is a Q&A platform where users ask various questions and a community of people answers them, is having all kinds of problems trying to finance an acquisition of Lexico, owner of the Web properties Dictionary.com, Thesaurus.com, and Reference.com.

Answers planned to buy the company for $100 million, even though Answers had just $9.2 million in cash at the time of the announcement. Skeptics, like my IOI partner, Zack Miller, just looked at the numbers and wondered how this deal was going to be financed, and it appears that they were correct to be skeptical. Since the announcement back in July, Answers stock is down over 65%.

In a note on Friday, paidContent.org referring to the deal financing said, "a plan to sell 14.94 million shares, raising $100 million. But that was based on the company's Tuesday closing price of $6.69. Since then the stock has been crushed, falling nearly 42 percent to $3.96. At this level, 14.94 million shares would only be worth $58 million, not nearly what it needs to raise to fund the buy. At these prices, the company would have to up the offering to 25.6 million, further diluting the value held by the company's current shareholders."

It looks like if this deal gets done, and I have my doubts that it will, investors are going to see lots more red, as the stock looks like it will be heading much lower.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position long or short in any stock mentioned as of 1/20/08.

Dilution is not the Answers.com originally appeared on BloggingStocks on Sun, 20 Jan 2008 17:40:00 EST. Please see our terms for use of feeds.

MAJOR PAPERS:

• Barron's Online's "Weekday Trader" section said that Bankrate Inc (NASDAQ: RATE), Answers Corporation (NASDAQ: ANSW), WebMD Health Corp (NASDAQ: WBMD) and The Knot Inc (NASDAQ: KNOT) may be the next preferred takeover targets for Google Inc (NASDAQ: GOOG) and Microsoft Corporation (NASDAQ: MSFT).
• The Wall Street Journal reported that Brad Tierney is interested in Dow Jones and Company (NYSE: DJ), which in talks with News Corporation's (NYSE: NWS) Rupert Murdoch for a possible $5B sale.
• According to the Wall Street Journal, citing a person close to the deal, Deutsche Telekom (NYSE: DT) will acquire the Orange Netherlands unit of France Telecom for about EUR1.3B, and simultaneously sell Ya.com for EUR320M to them.
• The Financial Times reported that three separate research teams showed the embryonic stem cells can be created by reprogramming some of the genes in adult mice skin cells, without creating an embryo. The news will be well-received by opponents of embryonic stem cell research, but scientists said it is too early to tell if the technique can be used with human cells.

• The Herald Sun reported that a new $237B Chinese state-owned investment fund may be interested in acquiring natural resources company BHP Billiton Limited (NYSE: BHP), according to Bell Potter research chief Peter Quinton.

Newspaper wrap-up 6-07-07: Brad Tierney interested in Dow Jones originally appeared on BloggingStocks on Thu, 07 Jun 2007 09:17:00 EST. Please see our terms for use of feeds.