Yahoo! – 23 March 1999
2
n Comments on a Possible YHOO/BCST Merger
The WSJ reported this morning (3/23/99), that Yahoo! is
in talks to buy Broadcast.com for approximately $4 billion,
or 110 to 120 per share. We believe that such a merger is
clearly possible and would be a good strategic move for
Yahoo, but do not think it will necessarily be a near term
positive for Yahoo's stock.
Broadcast.com is the leading provider of streaming media
services on the internet. Yahoo's long term mission is to
become “the one place where anyone would need to go to
find and connect with anyone or anything.” We believe
that streaming audio and video will ultimately be services
that internet users will want to quickly find and use.
Therefore, it makes sense for Yahoo! to offer these
services from its sight. We are concerned about the impact
that the announcement of such a merger might have on
Yahoo!'s near term stock performance for 2 reasons: 1)
the merger might be dilutive near term, and 2) it is
conceivable that we might see a bidding contest.
BCST is currently loosing approximately $5.2 million per
quarter. Yahoo recently announced plans to acquire
Geocities, which is also loosing a similar amount of
money. Although Yahoo! believes the Geocities merger,
alone, will be neutral to earnings, we believe it will be
more difficult (but not impossible) for the company to
acquire both Geocities and BCST and still have them be
neutral to earnings.
This said, we believe Yahoo's management is
extraordinarily disciplined and careful about protecting the
company's profitability. Therefore, we believe they would
be very cautious about making dilutive acquisitions (i.e. If
they are seriously considering buying BCST, it may be
because it may be neutral or even accretive to earnings).
We believe that BCST would also be an attractive
acquisition candidate for other major players. We consider
it possible that the news of the YHOO/BCST talks could
trigger a bidding contest. This would make it more
difficult for this acquisition to be neutral or accretive to
earnings.
In summary, therefore, we believe that acquiring BCST
would be a good strategic move for Yahoo! (one that
would strengthen the company's franchise long term), but
we are concerned that if the acquisition were to be dilutive,
investors might initially react negatively to it.
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Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 -Reduce,
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