Disney buys Infoseek stake
June 18, 1998: 8:15 p.m. ET
Swaps Starwave and $70M for 43% interest; will take option for control
NEW YORK (CNNfn) - Keeping its promise to expand its reach into cyberspace, Walt Disney Co. Thursday announced plans to purchase a 43 percent stake in Infoseek Corp.
In exchange for its share in the Web portal company, Disney will give Infoseek its ownership position in Starwave Corp. along with $70 million cash. Disney also said it will purchase warrants giving it the option to obtain a majority share in Infoseek in the future.
Infoseek hopes Disney's brand name and marketing power will give it a much-needed boost in catching up to the leading Web portal sites, while Disney gains an automatic entry into the hottest Internet segment.
"Disney gives us their tremendous promotional power. This allows us to advertise on the Disney properties in an integrated way. They give us the most popular sports site, the fastest-growing news site and integration with other properties," said Harry Motro, Infoseek's president and chief executive officer.
Analysts have estimated Starwave's value at $350 million, so, combined with the $70 million Disney is paying Infoseek, the deal is valued at around $420 million.
Appearing Thursday on "Moneyline With Lou Dobbs," Motro said "part of the magic here is that the people who are the leaders of Disney and Starwave truly have a vision to be No. 1 on the Internet. This deal is very much focused on what you have to do to be No. 1 in five years or less," he said.
With Infoseek's market capitalization of approximately $1.08 billion, Disney's 43-percent interest is valued at $464.5 million, meaning the entertainment giant struck a pretty good bargain for Infoseek.
Disney and Infoseek said they will offer a new Web portal service later this year combining Infoseek, Disney and Starwave content.
Starwave operates such popular sites as ABCNews.com, ESPN.com and the official Web sites for the NFL, NBA and NASCAR.
Web portals have been all the rage in the investment community over the last few weeks.
Portal sites act as gateways to the Web, featuring aggregated content and personalized services. The heavy user traffic that flows through a portal site has begun translating into advertising revenue for Internet companies that have struggled to turn a profit.
Because of the guaranteed heavy traffic, traditional media outlets see Web portals as ideal vehicles for expanding their Internet presence.
"We have made great strides as a sports, news and entertainment programmer on the Internet over the past four years. Through our association with Infoseek, we are now well-positioned to take advantage of the Internet as it evolves into commercial maturity," Michael Eisner, chairman and chief executive of Walt Disney Co., said in a statement.
Such portal companies as Yahoo! Inc. and Excite Inc. have seen their stocks surge in recent weeks, and some of the more established Internet companies have been getting into the act.
Earlier this month, Netscape Communications Corp. announced it was revamping its Netcenter portal, and Microsoft Corp. (MSFT) will launch its own portal, call Microsoft Start, by the end of the year.
Infoseek is counting on Disney's brand name and marketing prowess to boost traffic on its site, which trails far behind portal leaders Yahoo! and Excite.
According to RelevantKnowledge Inc., a market research firm that tracks Internet usage, Infoseek is the ninth-ranked Web property, averaging 13.5 million unique visitors per day.
That ranks far behind industry leader Yahoo!, which averages 32 million visitors a day. Infoseek also ranks last among the big five Web portal companies (Yahoo!, Netscape, Excite and Lycos are the others).
Adam Schoenfeld, senior analyst at Jupiter Communications, said the deal puts Infoseek back on par with companies such as Yahoo! and Excite.
"Infoseek really needed a big media partner," he said. "That doesn't mean they can throw out the shovel and stop digging, but it gives them parity in the portal market."
Linda Bannister, an analyst at Edward Jones, said the Disney-Infoseek deal amounts to a win-win situation for the companies.
"Infoseek gets a lot out of this deal by aligning themselves with Disney, which has deep pockets and a lot of marketing muscle behind it," she said.
"Disney gets technology from Infoseek that they don't have. They're going to introduce the new portal before the year's end, so Disney doesn't have to start from scratch."
Schoenfeld also pointed out that while Disney could have immediately aligned itself with a powerhouse like Yahoo!, the leaders in the portal market were too expensive to consider.
"It's buy low, sell high," Schoenfeld said. "Infoseek was distressed goods."
Christopher Dixon, an analyst at PaineWebber, said Disney is using the deal to leverage its push even further into cyberspace.
"This is not about Disney buying a portal," Dixon said. "Disney is adding value to Infoseek shares. You see Infoseek is up about $3 already. Now they can use Infoseek stock to go out and acquire other Internet businesses."
Disney to get remaining Starwave shares
Under terms of the deal, Disney will provide, and Infoseek will purchase, $165 million in advertising and promotional support for the new portal site.
Infoseek also will acquire the remaining 3.1 million shares of Starwave not owned by Disney in exchange for Infoseek shares.
Disney will receive 25.8 million shares of Infoseek stock and a minority position - three out of eight seats - on Infoseek's board.
Infoseek said it will take a one-time charge against earnings this year as a result of the agreement.
Last year, Disney bought one-third of Starwave from company founder and Microsoft Corp. co-founder Paul Allen. Disney exercised its option to acquire the rest of the company in April.
Starwave Chairman and Chief Executive Officer Mike Slade said the company had been in talks with Infoseek for the last several months in trying to establish some sort of partnership.
"After Disney and Starwave aligned, Jake [Winebaum, chairman of Disney's Buena Vista Internet Group] and I tried to expand Disney's reach," Slade said. "We talked to a number of companies, but secretly I was rooting for Infoseek."
With the Infoseek deal, Disney becomes the second big media firm in the last nine days to buy a minority stake in a portal site. Last week, General Electric Co.'s NBC division paid $32 million for a minority stake in Internet company CNET Inc. and its Web portal, Snap.
News of the deal sent Infoseek (SEEK) shares rising 5/8 to 35-1/8 Thursday while Disney (DIS) shares fell 2-5/16 to 112.
Investor enthusiasm in the deal spread to several other portal companies, as shares of Lycos Inc. (LCOS) closed up 2-1/8 to 61-5/8, Netscape Communications Corp. (NSCP) gained 2-9/16 to 27-15/16 and CNET Inc. (CNWK) rose 2-1/8 to 58-1/8. However, shares of Excite Inc. (XCIT) fell 3 to 73-1/8 and Yahoo was down 2-7/8 at 127-3/4.
-- by staff writer John Frederick Moore
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney