The real losers in Disney’s estimated $420 million deal to acquire 43% of Infoseek (NASDAQ:SEEK) this week are Yahoo! (NASDAQ:YHOO) and Excite (NASDAQ:XCIT)–both are left with a smaller partner pool in the big media space.
Yesterday Disney acquired 25.8 million shares of Infoseek while Disney gets a note for $139 million with warrants that allow it to own a majority of
Infoseek if exercised. The agreement aligns the world’s number 9 (Infoseek)
world’s number 3 site–assuming unduplicated reach–at 21.7 million users.
With Disney deciding on Infoseek that leaves its former larger rivals
Yahoo! and Excite without major media partners.
SEEK shares traded as high as $42 on June 18 before backing down and ending the day up $0.625 per share at $35.125. Some of the deal had already been discounted ahead in SEEK which started to gain ground the past few weeks on rumors that a large media suitor would emerge. Now that the deal has come to fruition, Wall Street looks to see what it means moving forward.
If we value Starwave at $350 million, add the $70 million cash Disney
kicks in, plus $139 million for warrants, the deal value looks like $559
million to Infoseek in total. However, Infoseek agreed to buy $165 million of
advertising on Disney’s networks, bringing the effective per share paid to
$15.27, or about one-third of where SEEK traded on deal fever.
However, we hold that Starwave on its own could have been spun out to the public at about $375 million, and may have traded north of CNET (NASDAQ:CNWK) rather rapidly. CNET’s market capitalization is more than $800 million. So
Starwave, which produces much of Disney-ABC’s Web sites and content, cannot
be ignored in what Disney has put on the table. That’s a mistake some
analysts make in suggesting Disney got a discount.
NBC hooked up with CNET/Snap last week, and now Disney, the world’s most valuable content, brand, and media firm, stops ‘Mickey Mousing around’ with Infoseek. Disney vaults run deep: ABC, ESPN, animation, movies, theme parks and several of the world’s most popular brands ever in Mickey Mouse and friends.
Infoseek opens its users up to the endless flow of Disney’s high-quality content, something that can be leveraged into community, chat, news, video, e-mail, portals, search, commerce, marketing, advertising, mixed media and more.
Over the next 10 years, Yahoo! and Excite may feel the strategic pinch of
not having camped out on Disney chairman Michael Eisner’s doorstep to get a
deal done. Who’s left? CBS (TV network, stations, radio); Time Warner
(almost as strong as Disney in every area); Viacom (movies and cable, MTV flagship brand); News Corp. (Fox TV, studios, newspapers); Bertelsmann
(music, film, publishing, and linked with Lycos in Europe, perhaps expanding further in the U.S. if Lycos sees the opportunity).
But by far, the best media brand in the world is now linked with Infoseek, a partnership that could transform SEEK into an extremely large Internet media company, perhaps surpassing Yahoo! at some juncture.
On the other hand, the best laid plans of mice and men sometimes go astray. Infoseek was the runt of the litter on Wall Street. Can its current lineup execute to leverage the magic kingdom plopped in its lap? TomorrowLand awaits.