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Disney to stop
January 29, 2001: 5:54 p.m. ET

Company to convert shares to Disney common stock, lay off 400
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NEW YORK (CNNfn) - Walt Disney said Monday it will close its money-losing Internet operation, a move which will result in about 400 layoffs, and fold shares of its Internet tracking stock back into Disney shares.

Disney said it will convert all shares of (DIG: Research, Estimates), now officially known as the Walt Disney Internet Group, to Disney common stock, effective March 20, and focus on its content sites and their commercial aspects. It will also close its portal.

Disney will take charge of $790 million, or 37 cents per share, in the second quarter as a result of the closing and issue about 8.1 million new shares. The company will also take an additional $25 million-to-$50 million charge related to severance and other costs.

"The competitive factors that initially compelled us to establish a separately traded class of common stock tied to our Internet operations have fundamentally changed," said Michael Eisner, Disney chairman and CEO, in a statement.

Disney President and COO Robert A. Iger told CNNfn's The New Show Disney erred in launching a portal that was essentially a work in progress. (398K WAV or 398K AIFF)

"We underestimated the advantage of in effect being a first mover in (the portal) space," Iger said.

"This is a difficult decision, as it impacts both our employees and users," said Steve Bornstein, Walt Disney Internet Group chairman, in a statement. "However, the Internet environment has continued to shift and change, and therefore our strategies must also change."

graphicUntil a few weeks ago, Eisner had said he intended to stand behind the Internet investments even while others were shrinking their operations.

The Burbank, Calif.-based company said a streamlined version of will operate for "a period of time" to allow for transition of its users and will also operate the Infoseek search engine during this period.

Click here to check on other Internet stocks was created when Disney acquired Web portal Infoseek in 1999. In August the company reported a second-quarter operating loss before amortization costs of $83.2 million, or 34 cents a share, beating Wall Street expectations.

Disney will exchange 0.19353 share of its stock for each share of Based on Friday's close, that values at about $5.77 per share.

Shares of Disney rose 21 cents to $30.02 in afternoon trading, while dropped 19 cents to $5.75.

Earlier this month, News Corp. (NWS: Research, Estimates), The New York Times Co. (NYT: Research, Estimates), and AOL Time Warner (AOL: Research, Estimates), the parent of, axed hundreds of online jobs as they seek ways to trim the costs of their online operations. graphic