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Secrets of the .org deal revealed, but much info remains private

Kevin Murphy, January 12, 2020, 15:54:17 (UTC), Domain Registries

ICANN has published a ream of new information about the proposed acquisition of Public Interest Registry by Ethos Capital, a deal widely criticized for what it could mean for millions of .org registrants.
The documentation was provided to ICANN by Ethos, PIR and the Internet Society, PIR’s current owner, on the understanding that certain confidential information would remain private or would be redacted.
Almost all of the juicy financial details remain unpublished, but there’s still plenty of interesting revelations among the packet’s 27 pages.
Before we dive into the details, here are the headlines:

  • The deal is being partly funded by an enormous loan.
  • Technically, Ethos isn’t the direct buyer. There are at least three corporate entities involved in the acquisition that we haven’t heard of before.
  • Ethos won’t reveal the names of the directors of PIR’s would-be owner.
  • Another former senior ICANN staffer and long-time Fadi Chehadé collaborator has been revealed as having an interest in the acquisition.

Most of the info relates to the proposed corporate ownership structure of PIR during and following the acquisition, and it’s a little bit more complex than Ethos simply signing a check to ISOC and taking the reins at PIR.
First, PIR is going to undergo what it calls a “statutory conversion” in its home state of Pennsylvania, changing its name from Public Interest Registry to Public Interest Registry LLC — essentially changing from a non-profit to a for-profit.
The company notes that this is not a change of entity — PIR will still be PIR — but is rather a change of its company type and legal name.
At the same time, a newly created non-profit fully owned by ISOC called Connected Giving Foundation will take 100% ownership of PIR LLC, before immediately selling its entire stake to the Ethos group.
But the buyer is not, directly, Ethos Capital. Instead, it’s an acquisition vehicle, created October 24 last year in Delaware, called Purpose Domains Direct, LLC. That company is owned in turn by another vehicle, formed the same day in Delaware, called Purpose Domains Holdings LLC.
Ethos controls both of these companies. It’s not unusual for acquisitions to be carried out via subsidiaries in this way.
That said, Ethos appears reluctant to reveal the names of these companies’ directors.
In its letter to ICANN asking for approval of the acquisition, apparently sent November 14 (one day after the public announcement), the names of the three Purpose Domains Direct directors are redacted. Corporation-friendly Delaware doesn’t make it easy to get at this information either.
However, in December 20 answers to a list of dozens of questions posed by ICANN about the deal, Ethos discloses that it has expanded its proposed board to five directors — the CEO of PIR (currently Jon Nevett), alongside two people selected by Ethos and two selected by “one or more minority equity holders”.
The minority owners are not named, but they could be the three entities revealed by ISOC’s CEO last November, which include funds managed by the Perot and Romney families.
The board will therefore be controlled by Ethos and PIR together, the documents state. No proposed directors other than Nevett are named and it’s not known whether the three redacted names from the November letter are still in line for seats.
The identities of individuals involved in the deal have been of keen interest since it emerged, shortly after the acquisition was announced, that former ICANN CEO Fadi Chehadé was acting as an adviser to Ethos, closely enough that he actually registered at least one domain name on Ethos’ behalf.
Ethos chief purpose officer Nora Abusitta-Ouri was a senior VP at ICANN until 2016, and CEO Erik Brooks worked for 20 years at Donuts owner Abry Partners, the private equity firm where Chehadé now works as a senior advisor.
Abry is not involved in the acquisition, the new documentation states. Neither are any current ICANN staffers or any other registries or registrars.
But it turns out that yet another former senior ICANN staffer is in fact involved.
The new documentation reveals that Allen Grogan, who worked as head of contracting for the new gTLD program and then chief of contract compliance at ICANN between 2013 and 2017, is also acting as an “advisor” on the deal.
It’s not clear whether Grogan is on the payroll of Ethos, Abry, Chehadé & Company, PIR, ISOC, or none of the above, but the smart money would surely be on him having being brought on board by Chehadé. Like so many senior ICANN officers hired during Chehadé’s tenure, the two men worked together for years at other companies.
The final nugget of new information that leaped out at me in the new docs is how the deal will be funded.
The packet reveals, I believe for the first time, that a good chunk of the $1.135 billion proposed purchase price is actually being paid for with new debt.
Ethos says that Purpose Domains Direct has taken out a total of $360 million in loans from various US banks to make up the shortfall left by its own investors.
The company said that PIR — a mature, high-margin business — will easily have the money to service this debt and, as a for-profit, pay its taxes. Repayments will be less than half of what it currently pays to ISOC every year, the documents state.
The documents were published here (pdf) on Saturday. Let me know if you spot something interesting I missed.

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Comments (12)

  1. Alech says:

    Fadi Chehade should be investigated.All his past dealings will be exposed.We need a face to his name.All these greedy people should ne exposed.No rest for the heartless.

  2. Mark Thorpe says:

    Looks like a deal with the Devil himself.
    Everyone is selling their soul.

  3. Let’s get this straight: goes though a number of banks/investors for funding, much of whom are to remain autonomous, until perhaps, ‘the deal is done’. With some money magic, re-branding this and that, a little more obfuscation through many recently incorporated companies which result in a couple (instant) hand-overs – apparently middle-men (don’t look at them). Then, behind all that red ink, .org ultimately lands in the hands of ~5 ultimate ‘owners’.
    Meanwhile some companies change their legal status, keep their name too, except they sell all their assets.
    Hence, PIR left with a pocket full of cash to further new endeavors, presumably, after the dust settles, of course.
    The moral of the story guys, PIR STILL EXISTS! *cheer* So don’t worry…

  4. John says:

    Remarkable what Fadi Chehadé has been able to do since leaving his post as CEO of ICANN:
    1.) Joined ABRY partners and his first deal was to acquire Donuts. Quickly after the acquisition was complete, Fadi raised prices on almost all of their TLD strings. Despite the fact that Donuts publicly told everyone they had no plans to raise prices and they would not do this on their captive base of users.
    Donuts specifically said:
    “we have no plans to increase prices for existing registrants — this is not part of our business plan”
    “We voluntarily entered into agreements with our registrars that dramatically limits our ability to increase prices for existing registrants.”
    But despite these statements and after ABRY Partners acquisition, Fadi & Donuts increased prices on 220 domain extensions.
    What about Donuts statement that it volunteered entered into agreements with registrars. Did this ever happen??
    2.) Put together the deal to acquire PIR and the .ORG registry. Now Ethos Capital (with very strong ties to ABRY partners) – will convert the non-profit into a FOR-PROFIT company. Non-profits are almost always operated very differently from for-profits and the fiduciary duty is fundamentally different.
    Now Ethos Capital is telling everyone “trust us” we will not raise prices unreasonably. But why would anyone believe Fadi Chehadé considering what he did in the past. Fadi Chehadé raised prices on its captive base of users – and Ethos is telling the world they will not do the same.

  5. Mike says:

    I will offer $5B for .org, owner financing please, what kind of joke is this.
    Seriously this is the most corrupt deal I have ever seen on paper.

  6. Snoopy says:

    Unless there is a contract with Icann not to raise prices then raising prices is exactly what they will do. They’ll do it early aswell and it will be another “shock to the system”.

    • Kevin Murphy says:

      Ethos/PIR has already pretty much confirmed they’re going to raise prices. They’ve only said that they won’t raise them by more than 10%/year “on average”.

      • Alech says:

        As soon as they take over,they want to raise price as soon as possible to recoup their on investment and greedy,crooked plans.

  7. Alech says:

    Where can we find the face of Fadi the greedy orchestra of this dubious deal?Please post link.

    • Kevin Murphy says:

      You have absolutely no idea a) how much money Chehade stands to make out of this deal or b) whether he stands to make any money at all out of this deal.

  8. James says:

    Seems to me that the Federal Trade Commission, Department of Commerce and maybe a few other fed agencies need to be involved in ferreting out “what gives” in the proposed transactions.

Leave a Reply to Alech