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Disney absorbs Infoseek
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July 12, 1999: 3:48 p.m. ET
Entertainment giant, Internet search engine to expand online partnership
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NEW YORK (CNNfn) - In a widely anticipated move, Walt Disney Co. Monday agreed to acquire the 58 percent of Web portal Infoseek Corp. it does not already own, marking the latest step in the entertainment giant's efforts to develop a cohesive Internet strategy.
Disney Chief Executive Officer Michael Eisner refused to put a price on the deal at a New York press conference Monday, instead touting the deal's potential.
"We are trying to put together and isolate our Internet activities into GO.com," said Eisner, adding he hoped this would make the company nimble enough to deal with a changing Internet while keeping its operations under the Disney umbrella.
Under the deal, Disney will combine its Buena Vista Internet Group with Infoseek to create a single Internet unit, which will be called GO.com.
Disney currently holds about 42 percent of Infoseek's shares under terms of an agreement reached last June. The two firms jointly operate the GO.com Web portal.
Disney has been searching for a way to develop a winning strategy for its disparate Internet businesses, which include Disney.com, ABCNews.com and ESPN.com. Wall Street had been anticipating the company's move to absorb the rest of Infoseek after Disney confirmed last month that it was in negotiations to do so.
Click here to see a chart of Disney's Internet holdings
Eisner told CNNfn the deal puts the company in a better position use the Web to provide multimedia content online -- such as Disney movies -- as high-speed Internet access becomes more prevalent. [318K WAV or 318K AIFF]
Disney's desire to take over the entire GO Network's operations is understandable, according to Barry Parr, Internet analyst at International Data Corp., particularly because it contains so many valuable Web properties.
"It controls the Web brands of ESPN, ABC and Disney," said Parr. "It's not surprising that it would want to own a majority of that company."
Terms of the agreement call for Disney to hold a 72-percent stake in the new GO.com company, which will include Infoseek and the rest of Disney's Internet properties.
Disney will issue a new class of common stock to track the new company's performance, which is expected to trade on the New York Stock Exchange under the ticker symbol GO.
Infoseek shareholders not thrilled
Under terms of the deal, Infoseek holders will receive 1.15 shares of GO.com for each of their shares and will own the 28 percent of the company not owned by Disney.
Judging from the performance of Infoseek's stock Monday morning, the company's shareholders were less than wowed initially by the deal.
Shares of Infoseek (SEEK) fell 4-1/4 to 47-1/2 shortly before 3:30 p.m. ET, whereas Disney (DIS) shares rose 3/16 to 27-13/16.
Infoseek President and CEO Harry Motro told CNNfn the stock's fall did not concern him.
"It's very early in the deal process. We feel very comfortable we got very good value for the Infoseek shareholder," Motro said. "The Infoseek shareholder gets to participate not only in the current assets of the Disney Company on the Internet, but the future growth of the Disney enterprise on the Internet."
Disney expects GO.com to operate at a loss for the next few years, said Steve Wadsworth, president of Disney's Buena Vista Internet Group, and said there would be a significant goodwill charge associated with the deal, though he could not specify at this point in which quarter the charge would be taken.
He also noted job cuts due to overlap were a possibility at the combined unit, which would have over 2,000 employees.
Catalog to provide e-commerce
Disney plans to contribute 52.5 percent of the assets for GO.com. Those assets include Disney.com, The Disney Store Online and ABC.com, as well as new Web initiatives in development. Also part of the package is Disney's portion of the 10-year joint ventures it currently shares with Infoseek, including ABC News Internet Ventures and ESPN Internet Ventures.
The length of those ventures was expanded to 99 years under terms of the new deal.
The companies said their combined businesses will generate about $350 million in revenue in the current fiscal year on a pro forma basis, $200 million of which will represent Internet-related revenue.
The balance, about $150 million, will come from the inclusion of the Disney Catalog, a key part of the site's e-commerce strategy, according to Wadsworth.
"You can't compete in e-commerce without infrastructure to back it up and that's what the Disney catalog provides," said Wadsworth.
Slow takeover
In June 1998, in a deal valued at about $420 million, Disney acquired a more than 40 percent stake in Infoseek in exchange for its ownership position in Starwave Corp., an operator of online information services. At that time, Disney also said it would purchase warrants giving it the option to obtain a majority share in Infoseek in the future.
In September 1998, Disney and Infoseek teamed up to create the GO Network Web portal, which launched last January. The "Go" name replaced the Infoseek brand as the portal service.
GO Network is now one of the top five Web properties, according to Media Metrix. However, it has created little Internet buzz otherwise, according to IDC's Parr.
"The portal business is all about stealing things from the competition," said Parr. "Go hasn't done anything that anybody has stolen. Until they do something that someone wants to steal, they're just another portal."
But Jill Krutick, entertainment analyst at Salomon Smith Barney, said the deal will afford Disney the opportunity to expand its Internet business.
"The Internet is probably one of the highest-margin new business initiatives Disney has going," she said. "Ultimately, this tracking stock… gives them ready currency to do deals in the fast-paced world of the Internet, and it allows them to be a lot more flexible in changing with the Internet landscape."
Krutick added that other media companies scrambling to develop a viable Internet strategy, such as CNNfn's parent company Time Warner Inc. (TWX), will likely follow Disney's lead. [276K WAV] or [276K AIFF].
Motro to step down
Infoseek's Motro said he has chosen to leave the company after a transition period following completion of the deal, which is expected to close by year's end.
"I believe in this deal and in GO.com's enormous potential for category leadership," Motro said in a statement. "As I've had the chance to reflect on Infoseek's tremendous accomplishments and growth, it has become clear that this is a perfect opportunity for me to take some time off."
Disney board and the non-Disney members of the Infoseek board unanimously approved the deal, which still requires the approval of Disney shareholders and non-Disney Infoseek shareholders.
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