April 1, 1999 8:35 AM PST
Yahoo, Broadcast.com sizzle after deal
During an analyst conference call this morning, Yahoo executives also said to expect more acquisitions during the year.
Shares of Broadcast.com surged 7.03 percent or 8.3 points to 126.5 in early trading. The stock has traded as high as 144.75 in the past 52 weeks. Shares of Yahoo edged 2.93 percent higher or 4.94 to 173.3. Yahoo closed yesterday at 168.38.
The terms of the agreement call for Yahoo to issue 0.7722 of a share of Yahoo common stock for each share of Broadcast.com common stock. In addition, all outstanding options of Broadcast.com will be converted into Yahoo options.
"Broadcast.com's tremendous first-to-market advantage has made it the leading destination on the Web for audio and video broadcasts, and it will provide significant added value to Yahoo's audiences worldwide," Yahoo chief executive Tim Koogle said. "The acquisition of Broadcast.com is a natural extension of our strategy to deliver the ultimate experience to Web users and a powerful advertising and distribution platform for both companies' content, advertising, and business services providers."
Koogle added that advertisers look for both the ability to target their advertisements and to provide rich media content.
The integration of Broadcast.com's technology will allow Yahoo to provide these options to advertisers.
"That smells like value and folks are willing to pay for value," Koogle said. Wall Street mostly reacted favorably to the Yahoo-Broadcast.com merger. Susan White, an analyst at investment bank J.P. Morgan, raised her outlook for Yahoo to "buy" from "long-term buy."
"We believe this is an important strategic acquisition, as it provides Yahoo with a broadband solution that it was previously lacking," White wrote in a research note. "In addition, it further diversifies [Yahoo's] revenues beyond advertising to include business services."
Indeed, Yahoo's executives stressed that business services are "absolutely key" to this deal going forward.
"We see still a good portion of the go-forward business coming from the business side and the media or advertising making a smaller percentage," said Yahoo president Jeff Mallett.
But this is not the last acquisition for Yahoo this year, Koogle said.
"You can rest assured that we are very, very serious about doing acquisitions at the right rate from an integration perspective," Koogle said. "We have done two substantial ones this quarter and you can expect us to maybe do a small number of smaller deals as the year progresses."
Yahoo executives said they plan to keep the Broadcast.com brand name as an entry point where consumers can come to a dedicated area that focuses on the listing and directory for Yahoo's streaming services.
Analysts also note that the acquisition will give Yahoo a foothold in business-to-business service revenues.
Broadcast.com generates about 40 percent of its revenues hosting internal corporate broadcasts, quarterly earnings calls, and other forms of bandwidth hosting, according to Jupiter Communications analyst Patrick Keane. This could become a way for Yahoo to extend its revenues beyond simply advertising banner sales.
"This allows [Yahoo] to diversify revenues from advertising alone, which is around 80 to 90 percent," said Keane. "For a while it's been pretty easy for Yahoo to put gas in the engine to keep rolling along. Now they've realized they have to acquire reach, and that they cannot sustain their reach on their early move advantage and brand alone."
Hambrecht & Quist's Noglows echoed Keane's statement. "Broadcast.com has spent a long time on the business services side of business, and it's an area where Yahoo's trying to get into in a big way," he said. "This a good stepping-stone."
The companies have been engaged in acquisition discussions for the past few weeks. Yahoo also hinted to financial analysts during an onsite meeting that it was planning to make more acquisitions this year.
Yahoo in January moved to acquire home page builder GeoCities, with which it plans to introduce more e-commerce functions to the site's close to 4 million members.
Analysts have long praised a possible fit between the two companies, saying that Broadcast.com would give Yahoo a strongly branded Web property and a traffic boost. Additionally, Yahoo could use Broadcast.com's technology platform to further develop its own broadband strategy.
The acquisition, which will be accounted for as a pooling of interests and is subject to certain conditions, including regulatory approval and approval by Broadcast.com shareholders, is expected to be completed in the third quarter of 1999.
Upon completion of the merger, Yahoo will exchange approximately 28.3 million shares of Yahoo common stock for approximately 36.7 million shares of Broadcast.com common stock. The company will convert approximately 7.1 million Broadcast.com stock options into approximately 5.5 million Yahoo stock options.
Yahoo will announce quarterly earnings on Wednesday, April 7, after the market closes.
News.com's Jeff Pelline and Sandeep Junnarkar contributed to this report.