NEW YORK (CNN/Money) -
Has Barry Diller been sleeping for the past two years -- or just licking his chops?
Even as the remnants of the dot-com meltdown smolder, Diller, the chairman of USA Interactive (USAI: Research, Estimates), announced on Monday that he wanted to buy the remainder of three Internet companies in which his company already owns majority stakes: online travel sites Expedia and Hotels.com and Ticketmaster, a ticketing service and online city guide.
The cost? About $4.5 billion.
Diller last month completed a sale of USA's cable programming assets, including the USA and SciFi networks, to form a new joint venture controlled by French media conglomerate Vivendi Universal (V: Research, Estimates). (Although USA Interactive no longer owns the networks, Diller will still be running them for Vivendi.)
Abandoning cable while embracing the Internet? May seem strange. Then again, Barry Diller has never been the conventional type.
He was the head of the Fox TV network when it debuted in the late 1980s and is widely credited with making Fox a viable competitor thanks to hits like "The Simpsons" and "Married With Children." Diller left that position in 1992 and after a year off, took over the QVC home shopping network. Diller sold QVC in 1994 to cable operator Comcast and went on to head QVC's main rival -- Home Shopping Network.
After buying the television assets of Universal (including the USA Network) from Seagram in 1998, Diller changed the name of his company from HSN to USA Networks. Later that year, USA made an unsuccessful effort to acquire NBC from General Electric. In 1999, Diller went after Web portal Lycos. That deal also fell through.
Now USA is just an e-commerce company with no media business (hence the name change from USA Networks to USA Interactive). But unlike the scores of dot-bombs from the late 1990s, USA has actually been able to make money from its online divisions.
Since USA already owns a controlling stake in Expedia (EXPE: Research, Estimates), Hotels.com (ROOM: Research, Estimates), and Ticketmaster (TMCS: Research, Estimates), it lists their results in its quarterly reports.
In the first quarter, Expedia, Hotels.com and Ticketmaster all reported positive earnings before interest, taxes, depreciation and amortization (EBITDA). In fact, the three businesses accounted for nearly 65 percent of USA Interactive's total EBITDA -- not including results for the media business. (USA presented that unit's numbers separately, due to the Vivendi deal.) The Home Shopping Network accounts for most of the remainder of USA's business, though the company has several other small Internet divisions.
But if USA already is benefiting from majority ownership of Expedia, Hotels.com and Ticketmaster, why bother buying the rest? Part of it may have to do with control. It certainly will be easier for Diller to run things as he sees fit by owning 100 percent of the assets. And in this age of Enron and other accounting debacles, investors are likely to find it easier to digest a company that has all its major businesses folded into one stock as opposed to four.
Perhaps most important -- the price is right. While the stocks of all three companies have done well this year, valuations for Internet companies are of course much lower than they were two years ago. And Diller is offering just a 7.5 percent premium to Friday's closing prices for Expedia, Hotels.com and Ticketmaster.
"It's a great move on Diller's part," says Steven Tuen, manager of the Kinetics Internet Fund. "He's doing it at an opportune time." As of April 30, USA Interactive was the fourth largest holding in Tuen's fund. Expedia and Ticketmaster were also among the 25 largest holdings.
Wall Street did not respond that favorably to the deal though. USA's shares fell 12.6 percent on Monday, erasing the stock's gain for the year.
Even after the fall, the stock still seems expensive based on earnings, with a P/E of 60. But Tuen says that looking at EBITDA and cash flow makes more sense because of USA's debt load and amortization of goodwill from acquisitions.
In First Call's database, only one analyst gives EBITDA estimates, Peter Mirsky of SG Cowen. The analyst is forecasting growth of more than 30 percent this year and next, and based on his estimate, the stock trades at 17.5 times EBITDA.
Part of the reason for Monday's drop may be concern that USA will have to raise its offers for Expedia, Hotels.com and Ticketmaster. After all, the premium is relatively low and all three companies have healthy growth prospects as stand-alone entities.
Either way, it's a no lose situation for Diller since he still will own the majority of the three companies. And regardless of what happens, Diller will probably continue shopping for other Internet assets. To that end, USA announced on Friday that it was buying privately-held Interval International, a company that runs an exchange that links consumers and time-share owners. The deal is valued at $578 million.
In addition, USA Interactive received $1.6 billion in cash as well as a preferred and common stake in the programming joint venture, Vivendi Universal Entertainment (VUE: Research, Estimates). "Diller is a patient man. Should this deal not go through he'll find other things to buy," says Tuen.