By Nick Patience
Yahoo! Inc took a second bite at GeoCities Inc and yesterday swallowed it whole, agreeing to buy the web-based community builder for the equivalent of $4.6bn. A year ago Yahoo took a minority stake in GeoCities after the latter rebuffed its takeover attempts and chose to launch its own $86m initial public offering instead in June, which was completed in August (01/06/98). Yahoo chairman and chief executive Tim Koogle said the two companies like to date before we get married and explained that until the second week of this month, an acquisition of GeoCities could not have been treated as a pooling of interests. He said the deal has always been in the back of our minds, adding that talks between the two heated up a week ago. We doubt such a deal would have occurred if Yahoo had succeeded in buying Excite before the end of last year, which it was pursuing before being nudged aside in favor of @Home Networks Inc. Yahoo will issue 0.3384 shares for each GeoCities share, or $113.66 per GeoCities share, which will involve 10.6 million Yahoo shares plus more for outstanding GeoCities stock options, making a total of 13.64 million Yahoo shares and options. The shares are worth $3.6bn plus about $1bn for the options at Wednesday’s respective closing prices. The deal represents a 51.5% premium over GeoCities closing price on Wednesday of $75.00. The new shares will represent about 10% of the combined entity. The deal is expected to close in the second quarter when Yahoo will take an unspecified charge, be earnings-neutral for the third and fourth quarters and be accretive by the first quarter of 2000. A majority of GeoCities’ shareholders have already approved the deal. Koogle revealed just how close the two companies had become since the deal at the start of last year, whereby Softbank Holdings Inc had sold some of its Yahoo stock to increase its stake in GeoCities – it owns about 30% in each – while the two companies also integrated some of their services. The two have been forwarding registrations to each other for a year now, which is the basis of any advertising-driven web business. Koogle did not want to go into details about how many, but it’s substantial, he told a conference call about the news yesterday. The GeoCities brand will live on within the so-called Yahoo network and there should be some savings immediately, says Yahoo, because whereas GeoCities currently pays to serve up its ads, Yahoo owns a company that performs this service. Yahoo also bought Irvington, New York-based Yoyodyne Entertainment Inc, a direct marketing company that runs promotions on the web, last October. Yahoo chief operating officer Jeff Mallet said Yahoo was not buying GeoCities for its content, most of which is created by the users, but for the platform and tools. GeoCities brings some 3.25 million users, or homesteaders to Yahoo, who have each established their own homepage using GeoCities tools and services. That’s a rise of 776,000 homesteaders during the fourth quarter alone. During December the company recorded an average of 53 million page views day – Yahoo averaged 167 million – although there will be some overlap between the two. GeoCities also produced its fourth quarter results yesterday, which showed a net loss of $8.4m, or 27 cents per share, up from $4.1m last time, on revenues that rose 42% to $7.5m. Wall Street had expected it to record heavier losses at 34 cents per share, but that’s all pretty much irrelevant now. For the year the company recorded net losses of $19.8m, up from $8.9m the previous year, on revenues that were up to $18.4m, from $4.6m in 1997. Yahoo closed up $31.875, or 9.5% at $367.75 and GeoCities up $42.25, or 56.3% at $117.25.
