Market Watchers Say Source Media Talking To Several Suitors
By JOHANNA BENNETT Dow Jones Newswires
NEW YORK -- Market observers still believe that Source Media Inc.'s (SRCM) days
as an independent company are numbered.
Some investors had even expected Yahoo! Inc. (YHOO), while releasing its
second-quarter earnings, to announce an agreement Wednesday to acquire the Internet
technology company. That didn't happen, but some market observers still insist a deal
is in the works.
"I don't see it as out of play at all," said Michael Rapp, senior managing director for
Oscar Gruss & Son Inc.'s private client group. "It may be Yahoo. It may be another
name."
Not everyone appears as willing to wait. Following a 14.4% gain Wednesday, Source
media shares were recently down 3/4, or 3.5%, to 20 5/8 on volume of 1 million,
compared with a daily average of
400,300.
And Internet message boards, once trumpeting a potential deal with Yahoo!, began
showing communications dismissing the speculation as just another fading Wall Street
rumor.
But analysts with ties to Source Media said they believe the company, which develops
software that allows people to surf the Internet over a television without using a cable
modem, has been in talks with several suitors over the last month.
And if it receives an offer, the analysts said, competing bids will emerge, possibly
from a list of contenders that include not only Yahoo, but also Microsoft Corp.
(MSFT), Excite Inc. (XCIT), At Home Corp. (ATHM) and America Online Inc.
(AOL).
"If Yahoo were to throw out a $35 (a share) offer for the company, I wouldn't be
surprised if someone threw out a counter-offer," said Southeast Research Partners
analyst Anthony Stoss.
Source Media officials were not immediately available to comment and Yahoo
declined to comment.
Rumors that Yahoo! could acquire Source Media have been circulating for weeks,
sending Source Media's stock price up almost $5 in one week.
The hullabaloo, according to analysts, surrounds the growing desire by Web portal
companies to acquire the technology needed to provide Internet access over cable
television lines, a market many agree is invaluable for Web companies competing for
users.
Source Media has 12 U.S. patents, valued by some at $1 billion. And if enforceable,
the company could lock up cable television Internet access and video-on-demand,
according to Southeast Research's
Stoss.
Whether Source Media is interested in a deal remains to be seen. The company is
thought to be in negotiations with several major cable operators for distribution
agreements for its technology, Rapp, senior managing director for Oscar Gruss & Son
Inc.'s private client
group, said.
"I haven't heard anything regarding a price," he said. "I know that a few months ago
Source Media put a poison pill in place ... It would have to be an attractive offer for
Source Media to decide to sell the company."
Both Yahoo! and Source Media have repeatedly refused to comment on speculation.
But small indicator lights have started flashing warnings that some analysts find
intriguing.
Analysts said Source Media has stopped returning phone calls recently, a common
practice for corporations when a major announcement is in the
works. And Gleacher Natwest, the firm that handled a past debt placement for Source
Media, has been restricted from commenting on the company.
"Something is in the works," said Stoss.
Officials with AOL couldn't immediately be reached for comment. At Home, Excite
and Microsoft declined comment, citing corporate policy.
Analysts were also intrigued by a recent $250 million private placement by Yahoo!,
which some feel may be an effort by the company to raise cash for acquisitions.
That type of money would come in handy for any company looking to acquire Source
Media, Rapp said, estimating that it would cost $100 million alone to pay off the
company's debt holders and preferred stock owners. |
