AutoTrader Group took a few hits from the financial press last week after announcing plans for a $300 million initial public offering. Some bloggers accused insiders of recently borrowing $400 million to pay themselves a one-time dividend.
AutoTrader collects revenue from more than 20,000 car dealers for its software products and to maintain car listings on Web sites. The company said it aims to use the IPO proceeds to reduce debt and make acquisitions, among other things. And it told prospective shareholders not to count on a dividend "for the foreseeable future."
Fortune.com's Dan Primack reported that in March the company amended its credit arrangements to permit a $400 million dividend for shareholders Cox Enterprises, Providence Equity Partners and Kleiner Perkins Caufield & Byers. Primack said the dividend didn't come from earnings, but rather that AutoTrader increased its long-term debt from around $884 million to nearly $1.3 billion.
"Private shareholders ... already got a big payout by adding more debt onto the company's balance sheet," he wrote. "No wonder certain public market investors have begun taking a much more skeptical look at private equity-backed IPOs."
Matt Nesto, the former CNBC reporter who now has the daily stock-picking show "Breakout" on Yahoo Finance, called it "cashing in before you cash out."
Nesto's "Breakout" partner, Jeff Macke, also took AutoTrader to task. In a video, Macke said: "There's nothing illegal about this; it's just kind of scummy. They've made it a lesser company -- and immediately after doing so, they're pitching on to the public."
Said AutoTrader.com spokesman Lou Laste: "We're in a required quiet period. I can't comment any further" on the IPO. He said the filing "does have all the relevant financial information, so that investors can be fully informed about the company's future potential."