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Company Description / Spin-Off Details

United Online Inc. (Parent) Provider of consumer products and services over the internet. It offers floral related products and services for consumer and retail florists. Services provided also include online social networking, online loyalty marketing, internet access and email. FTD Companies Inc. (Spin-Off) FTD will be a leading provider of floral, gift and related products and services to consumers and retail florists, as well as to other retail locations offering floral, gift and related products and services, in the US, Canada, the UK, and the Republic of Ireland. The business will operate with FTD and Interflora brands, both supported by the Mercury Man logo.
Spin-Off Details Announced Form-10 Filing Record / Distribution Date Spin-Off Ratio Expected Completion Tax Status August 1, 2012 April 30, 2013 TBA 1:1 3Q13 Tax-Free

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Key Data
Ticker Target Price Price ($ as of June 14, 2013) Market Cap ($ million) Enterprise Value ($ million) Primary Exchange Bloomberg Symbol Dividend ($) / Yield (%) Net Debt ($ million) UNTD 8.50 7.13 660 772 Nasdaq UNTD US 0.4 / 5.6 112

Revenue FY12 ($ million)

Shares (million) Market Float (million) 52 Week Range ($) Fiscal Year Ending Index Member

871
93 88 3.89 - 7.23 December 31 Not part of S&P 500

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Price Performance since Spin-Off Announcement

8.00

7.00

ROR: 68%

6.00

5.00

4.00

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Deal Overview On August 1, 2012, UNTD announced plans to conduct a tax free spin-off of its FTD business into a separate company, FTD Companies, Inc. The spin-off ratio is 1:1, implying that each UNTD shareholder will receive one FTD share for each UNTD share held as on the record date. Expected completion in 3Q13. Post spin-off, UNTD will not hold any stake in FTD. Current UNTD chairman has stated that he does not find it appealing enough to lead either the stub or spin. He will leave the company as of the date of the spin. CEO post spin-off yet to be announced.

Deal Rationale Shareholders were concerned with UNTDs declining share price following the weak performance of its social network and internet access services. Following pressure from investors, UNTD decided to separate the FTD business in order to provide significant operational and strategic flexibility for these businesses. The spin-off will separate high growth FTD assets from weak social network and internet access assets. Spin-off signals a departure from earlier strategy of diversifying to cushion falling market share of dial-up internet service.
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Drivers
UNTD - Content & Media Segment Turning Around Paid membership losses slowing down for Classmates.com. Spin-off will result in greater focus on the segment. UNTD - To be Debt Free post Spin FTD segment balance sheet suggests that UNTDs entire debt will be taken over by FTD. No interest burden would bolster turnaround activities.

FTD - Robust Performance Continues 1Q13 was the best quarter in terms of revenue and EBITDA, since acquisition by UNTD. Average order value remains strong. FTD - Efficient Business Model Ensures Strong Cashflow Upfront payment for deliveries, before payment to floral network vendors. Not required to maintain significant physical inventory; suppliers maintain substantially all inventory.

FTD - Compelling Valuation Closest peer 1-800-FLOWERS trades at ~6.8x FY14 EBITDA. It is smaller and does not have an international presence. FTD scores well in these aspects and deserves higher valuation. FTD would be worth ~88% of UNTDs (consolidated) current market cap, even if valued at par with 1-800FLOWERS current EV/EBITDA multiple of 8.1x. We expect the markets to value FTD at a higher multiple given its stronger fundamentals. This indicates steep conglomerate discount.
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Valuation

FTD
Esti. Equity Value $629 million ($6.80 per share)

UNTD (parent)
Market Cap $660 million ($7.13 per share)

UNTD Stub
Esti. Equity Value $164 million ($1.75 per share)

1) FTD We are positive on FTDs business fundamentals and believe these are much better than that of its closest peer 1800-FLOWERS, warranting a higher valuation multiple. We value FTD at 8.5x FY14 EBITDA, higher than 6.8x FY14 EBITDA for 1-800-FLOWERS.
$ million

EBITDA
Multiple (x) EV Less: Net Debt Implied Equity
Source: Spin-Off Research
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95
8.5 806 177 629

Valuation
2) UNTD (consolidated) We value UNTD on a sum of the parts basis. Following are our key assumptions: 1) Content & Media segment is valued at 5.0x FY14 EBITDA, significantly lower than peers following lower growth profile 2) Communications segment is valued at 4.0x FY14 EBITDA, lower than peer group median 3) FTD Companies valued as above
$ million Content & Media Communications Corporate Method EV/EBITDA EV/EBITDA EV/EBITDA Metric 24 26 (21) Multiple 5.0 4.0 6.0 Target EV 122 103 (126)

Enterprise Value
Add: Net Cash Equity Value FTD Equity Value Total Equity Value Shares (million) Target Price ($)
Source: Spin-Off Research

99
65 164 629 793 93 8.50

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Peer Review
Content & Media EV/EBITDA Company Facebook LinkedIn Groupon AOL Zynga Yelp Valueclick Median Internet EV/EBITDA Company Cincinnati Bell Consolidated Communications Earthlink General Communcations Ntelos Holdings Median
Source: Bloomberg

Ticker FB LNKD GRPN AOL ZNGA YELP VCLK

Mkt Cap ($ million) 61,989 20,341 4,701 2,887 2,739 2,031 2,007

FY13 15.6 53.5 11.8 5.9 18.0 85.2 7.8 15.6

FY14 12.2 36.1 9.8 5.5 10.3 39.3 6.9 10.3

Ticker CBB CNSL ELNK GNCMA NTLS

Mkt Cap ($ million) 759 755 599 384 337

FY13 7.8 5.8 4.5 5.3 5.1 5.3

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FY14 8.2 5.7 4.6 4.9 4.8 4.9

Financial Overview
Segment-wise Share in Total Revenue
80% % of total revenue 70% 60% 50% 40% 30% 22% 21% 18% 18% Thousands 65% 60% 70% 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 FY10 Communications Pay Accounts Communications ARPU FY11 FY12 Content & Media Pay Accounts Content & Media ARPU

UNTD (stub) segments

10 9 8 7 6 5 4 3 2 1 0

20%
10% 0% FTD FY10

14% 12%

Content & Media FY11 FY12

Communications

Top-line Consolidated top-line driven by FTD segment, the companys largest segment. Consolidated revenues declined 3% YOY to $871 million in FY12, dragged by lower revenue from Content & Media segment (-17% YOY) and Communications segment (-17% YOY). This was partially offset by higher FTD segment revenues (+4% YOY), following higher consumer orders. Post spin-off, UNTD (stub) revenues expected to be dragged by sluggish Content & Media and Communications segment. NetZero 4G mobile broadband business meaningful contributions expected only in FY14. In 1Q13, FTD segment revenue and adjusted OIBDA reached their highest levels since FTD was acquired by UNTD in August 2008. FTD, post spin-off, expected to continue robust top-line growth, aided by higher orders. Page I
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Financial Overview
Segment Revenue and OIBDA Margin
100 90 80 70 60 50 40 30 20 10 0 FY11 FTD FTD Content & Media Content & Media FY12 Communications Communications 60% 50%

$ million

40%
30% 20% 10% 0%

Operating Profitability Consolidated adjusted OIBDA continues to decline despite robust FTD OIBDA. Significantly lower adjusted OIBDA at both Content & Media segment and Communications segment.

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Balance Sheet
As of 31st December 2012, UNTD had a cash balance of $136 million and ~50% of this belonged to FTD. This suggests UNTD stub will have ~$65-70 million in cash. FTDs has a debt balance of $244 million, the same as UNTD consolidated. This suggests UNTD stub will be debt free post spin. FTD segment has contributed the most of the consolidated entitys operating cash flows. It contributed a whopping 79% in FY12, significantly higher than 39% contributed in FY11 and FY10. Post spin, the stub could generate positive operating cash flows, albeit at a declining rate, given continued pay accounts decline at both segments. FTD on the other hand is expected to post higher operating cash flows going forward.

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Dividend and Share Buybacks

Dividend and Dividend Yield UNTD has been regularly paying out quarterly dividends. Current dividend yield stands at ~6%. Dividend payout post spin is discretionary and is subject to determination by UNTDs Board of Directors each quarter following its review of financial performance and other factors. FTD to position itself as a growth company. May not pay dividends in the medium term. Dividend payments expected to resume eventually, given its track record of dividend payments to UNTD. Common Stock Repurchases In January 2013, UNTDs Board of Directors approved and ratified the extension of its share repurchase program through December 31, 2013. There were no repurchases under the program during the year ended December 31, 2012. The authorization remaining under the repurchase program was $80.0 million as of December 31, 2012.

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