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Demand Media shares jumps on takeover report

The Associated Press

NEW YORK (AP) -- Shares of online publisher Demand Media Inc. jumped Monday after a technology news website reported that it recently pulled out of a deal to become a private company.

THE SPARK: AllThingsD.com reported Saturday that Demand Media turned down a bid worth up to $1.2 billion last week from private equity firm Thomas H. Lee Partners. AllThingsD, a sister publication of The Wall Street Journal, cited unnamed people close to the matter in its story.

AllThingsD said that Thomas H. Lee Partners offered $11.28 per share for Demand Media. Demand Media closed at $7.25 Friday.

Representatives from Demand Media and Thomas H. Lee declined to comment on the report to The Associated Press Monday.

THE BIG PICTURE: Demand Media held its initial public stock offering in January 2011. It is an online content publisher that hires freelance writers to turn out mostly instructional articles on sites including eHow.com and Livestrong.com.

Investors were concerned that Demand could lose traffic and advertising revenue to its websites after Google Inc. changed its search formula last year.

THE ANALYSIS: Evercore Partners analyst Douglas Arthur downgraded his rating on Demand Media shares and said that investors should sell them now to make a profit since the deal is off.

However, JMP Securities analyst Patrick Walravens reiterated his "Market Outperform" rating on Demand Media's shares in a note to clients, saying interest from private equity was a good sign.

Walravens also said that he was "encouraged" to hear that eHow.com's traffic rose in the first quarter from the last three months of 2011, citing statistics from Internet research company ComScore.

SHARE ACTION: Up $1.37, or 19 percent, to $8.62. Shares had gained about 9 percent in 2012, through Friday's close. But they were off 57 percent from the IPO price of $17.