By Nick Patience
Yahoo! Inc duly acquired web streaming audio and video broadcaster Broadcast.com Inc in a stock and options swap valuing it at about $5.7bn. Broadcast.com’s market capitalization at the end of Wednesday’s trading stood at $4.04bn. However, Dallas, Texas-based Broadcast’s stock has been boosted over the past couple of weeks since rumors of this deal started to spread, and options top up the rest of the valuation.
Yahoo is banking on the explosion of broadband access both at work and at home. Yahoo chief operating officer Jeff Mallett notes that around half of all Yahoo’s traffic comes from the US corporate market, where broadband access is commonplace, but Mallet and Broadcast.com have their eye on an individual broadcasting platform, especially once the acquisition of GeoCities has closed and been integrated.
Yahoo is issuing 0.7722 of Yahoo common stock for each of the 36.7 million shares of Broadcast’s stock, valuing it at $130 per share – a roughly 10% premium over Wednesday’s stock price, reflecting the extent to which details of the deal had already leaked out over the past few days. It’s a 53% premium over the price on March 19, which is when Business Week first reported the story. Yahoo was already a minority shareholder and user of Broadcast.com’s content, as it bought $1.4m worth of the stock in January 1998, when the company was known as AudioNet (01/15/98). Broadcast.com’s stock split two-for-one on February 12. The company recorded net losses in 1998 of $15.7m on revenues of $19.0m.
The deal works out as the exchange of 28.3 million Yahoo shares for Broadcast’s 36.7 million shares and the conversion of approximately 7.1 million Broadasct.com stock options into about 5.5 million Yahoo options. Apparently, option contracts to buy Broadcast.com at $130 per share by April 17 were trading heavily yesterday afternoon on the options market. The agreement has no collar on the share price, but does have a significant break-up fee, according to Yahoo.
Yahoo will add Broadcast’s aggregation of all kinds of audio and video content to its network of web sites over time. Its combination of TV, radio, sports broadcasts, audio books and corporate communications service is currently broadcast to one million people daily. It uses technology from various software and hardware vendors, including RealNetworks Inc, which is also a competitor.
Whereas at the moment, users at sites like GeoCities are able to create their own web sites and host their own images, they will be able to add their own streaming media to their personal web sites – but that’s a fair way off given the current quality of the streaming from Broadcast.com. Broadcast chief executive, Todd Wagner says the company has learned a lot from its broadcast of the Victoria’s Secret fashion show in February, which got the company more than two million new users to its site – but also a lot of complaints from those that could not get on. He reckons that within two years, the quality of the video delivery will not be an issue.
The acquisition, which is accounted as a pooling of interests, is expected to close in the third quarter of this year, when Yahoo also expects to take an undisclosed one-time charge for acquisition expenses. It is not expected to be accretive to Yahoo’s bottom line until the third quarter 2000. Broadcast.com will become an independent unit within Yahoo called Yahoo Broadcast Services – still in Dallas – and will be responsible for the acquisition and delivery of all multimedia content from Yahoo sites. Mallet couldn’t say for certain how many users are unique to each site, but reckons it added about three percentage points on its reach based on Media Metrix figures, giving it about 63% of the entire web audience.
Ever since Yahoo took its minority stake, top management from both companies have met on a monthly basis and at the last meeting about a month ago, the teams decided to look at the big idea as Yahoo’s Mallett called the acquisition yesterday.
Goldman Sachs Group LP represented Yahoo and Morgan Stanley Dean Witter was Broadcast’s banker the table in this deal. Broadcast.com went public in July last year, selling 2.5 million shares at $18 per share. They closed at $62.75 on the first day (07/20/98).
