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20/20 Hindsight: That Cringeworthy ComScore Deal

20/20 Hindsight: That Cringeworthy ComScore Deal

 (AP)

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Saturday, 11 February 2017 10:24 AM Current | Bio | Archive

Say a company -- audience tracker ComScore Inc. -- makes an acquisition using its own stock. Soon after, an accounting calamity results in said stock being delisted from the exchange, and its price collapses in the process.

Talk about cringeworthy.

Wouldn't you know it, that's the grade Gadfly assigns last year's merger of ComScore and Rentrak Corp.

At about $800 million, it was ComScore's largest deal and was meant to create a stronger rival to take on Nielsen Holdings Plc, whose ratings are the basis for TV-advertising rates. Before joining forces, ComScore's bread and butter was tracking consumers' online behavior, such as Twitter's and GrubHub's mobile users, while Rentrak measured TV viewing and movie box-office results. The stock-swap deal gave Rentrak investors one-third ownership of the combined entity, unfortunately for them.

Last March, just five weeks after completing the transaction, ComScore said it wouldn't finish reviewing its 2015 financial results on time. It still hasn't, and so this week its shares were delisted from Nasdaq and moved to over-the-counter trading. 

When the merger was announced, Rentrak shareholders were receiving close to a 20 percent premium. That's obviously been wiped out. 

ComScore, now valued at $1.3 billion, initially discovered faulty accounting for non-monetary transactions, which overstated 2015 revenue by $29 million and understated its operating loss that year by about $8 million. In September, the company said three years' worth of filings -- which were originally blessed by auditor Ernst & Young -- would be restated. But then in November, ComScore said adjustments would need to be made to some monetary transactions as well. While it's working to regain compliance with U.S. Securities and Exchange Commission requirements by summer, it couldn't guarantee that. 

What's troubling is that the more they dug, the more they seemed to find. It was during a conference call with analysts just five months ago that Chief Financial Officer David Chemerow said he and CEO Gian Fulgoni didn't expect ComScore's stock would be delisted. It will take a long time to rebuild trust with investors. 

As Fulgoni and Chemerow have said themselves, these accounting issues are a big distraction for the business -- and from the strategic merits of the Rentrak merger. It could have been a good deal and timely, as more viewers watch TV on new platforms. But their goal to take share from Nielsen probably has given Nielsen a good chuckle.

That's not to say that eventually ComScore won't become a bigger threat, but for now, ComScore is its own growth obstacle and needs to get its books in order. As for Rentrak, lesson learned: This is about as bad as a stock deal can go -- next time, demand some cash! 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

 

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

© Copyright 2019 Bloomberg L.P. All Rights Reserved.

   
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Say a company -- audience tracker ComScore Inc. -- makes an acquisition using its own stock. Soon after, an accounting calamity results in said stock being delisted from the exchange, and its price collapses in the process.
audience, tracker, ComScore, deal
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2017-24-11
Saturday, 11 February 2017 10:24 AM
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