July 13, 1999 06:01
Disney and Infoseek pass GO
Disney (NYSE: DIS) announced on Monday that it will combine its Buena
Vista Internet Group with Infoseek (Nasdaq: SEEK) to form a single Internet
entity called Go.com, which will be reflected in a new stock symbol, "GO," a
tracking stock that will trade on the New York Stock Exchange.
Because both Disney and Infoseek already trade publicly on the markets, and
because both companies had already aggregated their Internet properties into
the Go Network, the deal amounted to little more than a cleanup of the
ownership and management structures behind the Go Network. It will also
create a new class of common stock to which Disney Chairman and CEO
Michael Eisner can point and say, "That's my Internet play."
"It simplifies the management structure," says Henry Blodget, senior analyst
with Merrill Lynch (NYSE: MER). "It was so convoluted before."WHO'S THE
MAN?
Before the creation of Go.com, Disney controlled 42 percent of Infoseek and
the two companies shared the Go Network, which linked both of their Internet
properties. But since the partnership was launched last November, there was
little doubt about who was controlling the venture: Disney.
Earlier this month, the companies hinted at the merger when they issued a
statement saying they were exploring "a possible business combination." The
Go.com deal formalizes Disney's control and puts the financial interests of the
Go Network behind the tracking stock.
In the merger, Infoseek shareholders will receive 1.15 shares of Go.com for
each of their Infoseek shares. Given Disney's current approximate 42 percent
ownership of Infoseek and contribution of 52.5 percent of the assets to the
combined enterprise, Disney will own approximately 72 percent of Go.com
following the merger. The transaction is expected to close by the end of the
calendar year.
Disney and Infoseek officials said the deal is designed to focus Disney's
Internet operations. "The new structure will eliminate operational redundancies,
making it easier to pursue initiatives such as electronic commerce,
international expansion, broadband, third-party partnerships, and
cross-network sponsorship opportunities that will increase the overall strength
of the Go.com portal," says the official statement.
Infoseek CEO Harry Motro will leave the company once the merger is
complete.
WHAT'S THE BIG DEAL?
On the day of the announcement, Michael Eisner toured the press circuit in
New York, issuing grandiose statements about what Go.com would do for
Disney on the Internet. "It takes our strategy to the next level," he says in the
statement. But looking at the terms of the deal, it's hard to figure out what it
will change about Disney's Net strategy.
For example, most of the prominent Disney Internet properties -- the Disney
Store, Disney.com, Family.com, ABC.com -- are already a part of the Go
Network. Other key Go properties -- ESPN Internet Ventures, ABCnews.com,
and Mr. Showbiz -- were already jointly owned by Infoseek and Disney. The Go
Network itself, which has steadily held the number 5 position on the Media
Metrix (Nasdaq: MMXI) list of top Internet properties since it was launched in
January, is not likely to leapfrog number-4 Lycos (Nasdaq: LCOS) simply
because it will live under a new stock symbol.
Unlike some of the recent deals involving big media and Internet media
companies -- such as the recent partnership between General Electric's
(NYSE: GE) NBC, CNet (Nasdaq: CNET), and Xoom.com (Nasdaq: XMCM) to
create NBC Internet (NBCi) -- the Go.com deal doesn't aggregate any large
new portion of the Internet landscape, either. Wall Street's take on the financial
impact of the deal was mixed: Infoseek lost $5.56 (10.80 percent) to close
Monday at $45.94, and Disney closed at $27.81, a gain of $0.19 (0.68
percent).
What the deal will do, however, is allow investors to more easily track the
financial performance of the Go Network properties, which were previously
divided between the Infoseek and Disney results. According to Disney and
Infoseek officials, revenues for the current fiscal year are expected to be about
$350 million. Disney officials hope that by streamlining the Internet portal to
the Disney properties, they can continue to generate e-commerce from Disney
products. For example, of the $350 million, $150 million is expected to come
from sales of Disney-branded products, say Disney officials. In comparison, for
the six months ended April 3, 1999, Infoseek reported $66 million in revenues.
The new network will be advertised on Disney media properties, which include
ABC television and radio, ESPN, and the Disney Channel. This, again, is
nothing new, as the Go Network had the same marketing arrangement. |
