To George and Group--A few comments as we "stream" ahead:
Thanks, George, and so many others, for your kind words, PMs and general encouragement. Try to contribute where I can.
Wanted to let today's buzz settle down before I commented, and it's good I did. We've been all over the place just since the close! $4B, $4.4B, $5.7B and my personal favorite...$44B (thank you, CNBC!).
Let's cover a few things now and plan to reconvene after the official announcement Thursday morning. We're still in motion, so surprises are possible.
Deal Valuation: LCOS Blues Over!
We had discussed $5B+ for BCST, and we got it. Had originally figured we were "entitled" to about $5.2B, and it looks like we're getting $5.7B. Few expected it, but those who did are smiling. Even our own legendary buy-side analyst, Steve Harmon, punked out at $4.7B, but he made the point that YHOO would be buying traffic at "half-price." For that call, he gets an "A."
Our Share Price Target: Still $150+
Now, to address the $150+ share price target for which many of us are looking. The problem here is that we had no way of knowing how much dilution would accrue during the quarter. BCST has released an updated share count, and it's apparent that many options have been issued during the quarter. (You want talented and motivated employees? Pay up!) Thus, while a $5.7B deal works out to $166.76 per share based on earlier-reported shares outstanding of 34.186mm, and $154.96 based on the very recent 36.782mm figure, it comes back to about $130.00 based on the fully-diluted count of up to 44.2mm shares (inclusive of employee and other options).
So, as fabulous as the deal is, we're still looking for at least $20. Where are we gonna get it? Two possibilities: YHOO or an 11th-hour bidder.
Getting $20 from YHOO: Easy
The Street will perceive the BCST/YHOO deal favorably and the Nets will move. Barry "The Godfather" Diller's LCOS curse is history! YHOO may weaken a bit, but only briefly. There's a fair chance it could rise on the news, but the deal needs to be digested, so don't expect much immediately. Analysts need to grapple with a new world order. When they figure it out, they'll be very, very bullish. Importantly, YHOO's already the subject of recent upgrades, with price targets of up to $300. With the BCST "enhancement," YHOO $200's a piece of cake. YHOO closed Wednesday at $168.375, with BCST at $118.1875. If the reported conversion ratio of 0.77 proves correct, then this percentage of a YHOO share works out to $129.65 per BCST share. (Suggest we ignore Wednesday's abbreviated after-hours activity, prior to the trading in both stocks.)
BCST should trade at a 5-6 percent discount to the deal value (which will diminish to zero as the closing approaches), so figure on about $122.00 for BCST at YHOO's closing price Wednesday. BCST will "track" with YHOO from this point on, so follow YHOO closely.
Getting $20 Elsewhere: "It ain't over till it's over!" (Y. Berra)
There's another bogey in the air. Even after the deal is announced, there could still be another bid. Bong's post from TheStreet.com makes this suggestion:
"Some analysts warned that the deal could spark a costly bidding contest for broadcast.com, which is the only large, high-profile streaming-media company besides RealNetworks (RNWK:Nasdaq). "We believe that BCST would also be an attractive acquisition candidate for other major players," wrote [Merrill Lynch's] Blodget. "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 [YHOO's] earnings.""
As we know, AOL needs BCST, but there are many others. The list is long and includes all of the usual suspects. Finally, don't count out MSFT. It can absolutely pay the most, especially with cash (in whole or in part). Under the circumstances, a last-minute bidder would essentially pay off YHOO according to deal provisions we may hear about tomorrow, or thereafter.
My guess is that bumping YHOO now could cost somebody $500mm, plus an additional premium to BCST shareholders. If you were YHOO, would you sell your exclusive right to buy BCST for $5.7B for $500mm? You very well might. MSFT would just cut a check and throw in a copy of Windows 98 (remember Media Player?!) to boot. While we can't assume that YHOO has messed up the deal's terms, it might still want BCST after another bidder shows up with a higher offer and thus, *raise* its offer. In that case, it gets no compensation. Stranger things have happened.
So you pays your money and you takes your choice. We've always sought the bottom line here, and we're still looking for it. As ever, patience is a virtue.
BAM
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