Yahoo to buy Broadcast.com in stock deal

Journal Record, The (Oklahoma City), Apr 2, 1999

SANTA CLARA, Calif. (Bloomberg) -- Yahoo, the No. 1 Internet directory, will buy Broadcast.com for about $6.08 billion in stock and options to add audio and video of sports, news and music to its World Wide Web site.

Yahoo will exchange 0.7722 share for each share of Broadcast.com, or about $138.80 a share.

Yahoo also will convert Broadcast.com options into options for 5.51 million Yahoo shares. Yahoo Chairman and Chief Executive Tim Koogle, who acquired GeoCities in January, is seeking to attract more users. The purchase of Broadcast.com, the brainchild of Chairman Mark Cuban, adds multimedia broadcasts of sports, business press conferences, music and news. Yahoo is improving its content as efforts to retain users by competitors increase. Yahoo "wants to be the only place you need to go for anything and everything you need on the Web," said Merrill Lynch analyst Henry Blodget, who has a "long-term buy" rating on its shares. Yahoo is buying a company that had a loss of $16.4 million last year on revenue of $22.4 million. Still, the Santa Clara, Calif.-based Yahoo only had a profit of $25.59 million on revenue of $203.3 million in 1998. The sevenfold increase in the Yahoo's shares in the past year has allowed the company to use its high-flying stock as currency for acquisitions. Yahoo is now worth about $35 billion. The transaction represents a 10 percent premium to Broadcast.com's closing price Wednesday and a 53 percent premium to its price on March 19, the day Business Week reported on the talks. Broadcast.com, which was founded in 1995, would give Yahoo so- called streaming media, which combines audio and video in broadcasts over the Internet. Broadcast.com runs the equivalent of radio and television stations on the Internet. That should allow Yahoo, which already has 35 million registered users and hosts 2,225 merchants and advertisers, to better compete against rivals Excite, Infoseek and Lycos. It also puts Yahoo in competition with America Online and Microsoft as a Internet franchise, Blodget said. Broadcast.com has exclusive Internet broadcast rights for 24-hour- a-day programming from more than 385 radio stations and 40 television stations and cable networks. Yahoo's advertisers and merchants will also have more options to promote their businesses on, such as multimedia advertising and business services hosting opportunities. The company will be able to offer merchants the ability to broadcast audio and video so consumers can see and hear more about their products. "This has the potential to create the executable and deliverables of what (cable-television channel) QVC does," Yahoo President Jeff Mallett said. Broadcast.com will become a separate Dallas-based unit called Yahoo Broadcast Services. It will be responsible for all multimedia technology, which will be integrated into different areas of Yahoo's service, particularly finance, sports, entertainment and shopping. It gained national attention when the video tape of President Bill Clinton's deposition regarding his relationship with White House intern Monica Lewinsky was aired. Its broadcast of the Intimate Brands' Victoria's Secret lingerie Webcast also helped it gain notoriety. The acquisition should move Broadcast.com the company beyond the market niche that it had established. "We really hadn't begun an audience building or audience development strategy. When we looked at the core competencies of Yahoo, they matched specifically what our weaknesses were," Cuban said. Cuban gets a windfall of about $611 million from the transaction. He owned about 4.7 million shares when the company t first sold stock to the public on July 17, according to federal filings. Broadcast.com co-founder and CEO Todd Wagner's 2.74 million shares at the now worth about $356.2 million. Yahoo doesn't expect the purchase to add to earnings until the third quarter of next year, the company said on a conference call. Operating margins should remain around 30 percent to 36 percent. Yahoo expects to take an unspecified one-time charge in the third quarter of 1999 related to acquisition expenses. The transaction, which will be accounted for as a pooling of interests, is expected to be completed in the third quarter. The company already had a relationship. Yahoo invested $1.35 million in Broadcast.com when that company was named AudioNet.