Confirmed: $1.4B Mobile/Browser Toolbar Startup Conduit Is Splitting, Still Mum On Perion Acquisition

Conduit, the Israeli-based browser-toolbar and mobile startup estimated to be worth some $1.4 billion, has confirmed to us that it is splitting itself into two entities, but is declining for now to say that it is purchasing Perion as part of the deal. We have also obtained employee memos from sources with more details about the changes; we are embedding those below.

“Conduit has always been about providing engagement solutions across web and mobile platforms. As some of our products have matured, we have begun efforts to split the company in order to allow our more mature business units to fulfill their potential, while maximizing the opportunities for our other products and services to focus on Conduit’s overall engagement vision,” a company spokesperson told us in an emailed statement. “Beyond that, there’s nothing specific to say at this point and we don’t comment on rumors.”

The news follows several unconfirmed reports earlier today noting a company split; more than one source close to Conduit also confirmed the details of Conduit’s plans to TechCrunch directly.

The details of that story as we have heard it are as follows: One part, focusing on its mobile business, will be run by existing CEO and co-founder Ronen Shilo; and the other, called Client Connect, which develops a toolbar for websites (not unlike Google-acquired Meebo) will be merged with Perion, the umbrella company of Incredimail (unified messaging app), Smilebox (photo sharing) and the SweetIM (an IM app). Client Connect is currently run by Josh Wine and he will continue to lead that part of the business.

The Perion deal is a reverse takeover that will see Conduit pay between $100 million and $200 million for the company and assume Perion’s public listing on NASDAQ. (Perion’s current market cap is $153 million.)

Acquiring a company in order to take on its public listing is a way for Conduit to “avoid the complex hassle” of a public offering, according to a report earlier today in Israeli tech blog GeekTime. There is also the fact that taking the company public gives existing shareholders the chance to free up capital in the company.

Conduit has built up a hefty operation since first opening for business in 2005, with some 250 million users and 260,000 publishers on its platform. It reportedly makes about $800 million in revenues annually, with between $200 million and $300 million of that from the toolbar business. The mobile business is based primarily around a DIY app and mobile website builder, with a basic version of the service coming free and more enhanced features starting at $39/month.

The move is the latest chapter in the growth of consumer Internet companies coming out of Israel. The country, known for strong plays in enterprise and infrastructure technologies, has been gaining a name for itself more recently for some of its more consumer-focused companies, such as Waze, which Google acquired last month for a price we understand to be around $1.1 billion.

Prior to today, Conduit had raised some $110 million in funding, including $100 million from JP Morgan for a 7 percent stake in the company. Other investors include Benchmark and Yozma Venture Capital. (Benchmark partner Michael Eisenberg, who sits on Conduit’s board, declined to comment for the story when we reached out; and it’s unclear if Yomza is still an active investor after selling shares in February 2012.)

The first of the employee memos from CEO Shilo notes all the media speculation that has been underway today, by way of leaked internal memos, noting “I’m happy to throw them another one.” Thanks, Ronen!

The second is the first email the company wrote to employees, which sparked off all the hoo-hah.

Dear employees,

As we see, the media is working hard these days using my emails to the company as a basis for all kinds of speculation… so I’m happy to throw them another one.

In the last month, the option I mentioned of splitting the company has become a decision. Many people are now working around the clock inside and outside the company to make it happen, and the rumors are spreading like crazy. Obviously in the course of examining the split, we have evaluated many strategic options for Client Connect and were approached by other parties. At this stage, our number-one priority remains the same: We are totally focused on completing the split. We see it as a very important step for the company, which will allow us to maximize the opportunities of both CC to become its own company, and Conduit to focus on its engagement vision.


From June 10:

Dear employees,

Almost one year ago Josh Wine joined Conduit to lead the Client Connect division as part of our on-going practice to structure the company as separate product divisions. And indeed, Josh’s immediate action was to unite the business and engineering/product under one roof, re-brand the division internally as Client Connect, strengthen the management team and introduce additional products to the unit.

Like other product units in the company, Client Connect relies on a strong interface with supporting groups such as Legal, Finance, BSS, HR and Marketing to reach its goals. However, we firmly believe that by eliminating these dependencies we’ll be able to significantly improve Client Connect’s efficiency and ability to realize its business potential. Today, after gaining more “mileage” with this divisional structure and improving the collaboration between the groups, we are continuing to explore further steps in creating more autonomy. Our discussions around this issue are not just limited to minor changes and one of the options we are discussing is spinning-off Client Connect into a separate company.

This is an exciting yet complex idea that, on one hand, brings with it various challenges yet on the other hand gives great opportunity for an independent company (and its shareholders) to truly succeed. These days, we are dedicating much of our time to this discussion and consulting with the right people. While we are still deep into this process, you should take away 2 important points from this email today:

1. We will keep you posted as we progress and more information becomes available.
2. We are committed to ensure that your rights and privileges as Conduit employees will not be harmed during this process.

Thank you,