Disney absorbs Infoseek, creates Web unit

The Walt Disney Co. (NYSE: DIS) on Monday said it will merge its Internet properties with Infoseek Corp. (Nasdaq: SEEK), rename the entity Go.com and create a new stock to track the portal. According to analysts, the total deal is worth $6.6 billion to $7 billion.

The deal will combine Disney's Buena Vista Internet Group and Infoseek. A new tracking stock will be issued under the GO ticker.

The Disney-Infoseek deal has the approval of both boards of directors, but needs shareholder approval.

Under the merger, Infoseek shareholders will receive 1.15 shares of Go.com for each of their Infoseek shares. Analysts say the deal values Infoseek at $52 a share. Disney currently owns 42 percent of Infoseek and will have a 72 percent stake once the merger is complete. The deal is expected to close by the end of the year.

In an interview with ZDII, Steve Wadsworth, president of Disney's Buena Vista Internet Group, said there will be goodwill charges that will be detailed in upcoming regulatory filings.

Wadsworth said that the deal will make everything easier when it comes to promoting Go and running the portal in general. "Clearly we will leverage the offline programming and properties," he said. "We will also integrate the verticals more fully."

Valuation fuzzy

Sources said Merrill Lynch is valuing the deal at roughly $7 billion with Infoseek independently valued at $3.5 billion. Infoseek's market capitalization on Friday was $3.18 billion.

In a research note, PaineWebber analyst James Preissler put a $6.6 billion price tag on the deal. Preissler said the transaction "is fairly valuing Infoseek" at $52 a share. Infoseek shareholders will hold about 28 percent of an estimated $6.6 billion company, or roughly $1.85 billion in market cap.

Wadsworth said Disney added "very significant" assets to the deal, including Disney.com, Disney's Club Blast, The Disney Store Online, Disney Travel Online, Disney.com's international sites, Family.com, ABC.com, Oscar.com and ABCSports.com in the Go.com network. Disney will also throw in revenue from its Disney catalog.

Wadsworth, however, wouldn't be pinned down on how the assets were valued. "We'll let the market decide," he said.

In total, Disney is contributing 52.5 percent of the assets for Go.com. Aside from Disney's properties, the company is also adding its share of the 10-year joint ventures it currently shares with Infoseek, including ABC News Internet Ventures and Wall of Sound. The length of those ventures was expanded to 99 years under terms of the new deal.

With the addition Disney properties, Disney said Go.com will have about $350 million in revenue for the current fiscal year. Of that sum, $200 million is Internet-related and the remainder comes from Disney's catalog.

Catalog business key

Wadsworth said the addition of Disney's catalog business could become the most important asset of the deal. "In order to succeed in e-commerce you need the back end," said Wadsworth. He added that Disney's catalog operations operate at "significant scale" and will take on an increasingly important role as direct selling migrates to the Internet.

Wadsworth, however, was mum on how Disney valued the catalog operations. "But we clearly don't expect an Internet valuation on that asset," he said.

Part of the reason the USA Networks-Lycos merger fell apart was the inclusion of USA's Home Shopping Network. USA chief Barry Diller argued HSN provided the infrastructure to be an e-commerce powerhouse, but the market had big problems with the valuation of HSN.

Disney sees Go.com revenue remaining advertising dominated in the short-term. In the long run, Disney will see growing e-commerce revenue," said Wadsworth.

Strategically, Disney said the new Go.com entity will enable it "to move the business more nimbly and effectively" and make it easier "to pursue initiatives such as electronic commerce, international expansion, broadband, third-party partnerships and cross-network sponsorship opportunities."

No big traffic increase

Although Disney is adding established brands to the Go network, don't expect any major leaps in its page view or reach statistics.

Go.com is currently fifth in terms of reach behind Lycos, Microsoft, Yahoo and America Online properties.

Wadsworth said that properties such as Disney.com weren't included in the original Infoseek partnership, but traffic was still counted under the Go moniker.

However, Disney's Internet president said the company will be able to boost traffic because properties can now be integrated much more closely.

Disney said it will be able to promote Go.com better under the new arrangement. The Disney-Infoseek combination so far has had mixed results. In Infoseek's most recent quarter, the company showed it could grow traffic, but didn't provide a revenue boost. There were also cultural and management hiccups.

Analysts aren't expecting much from Infoseek when it reports earnings next week. "I'm only looking for modest signs of growth," said PaineWebber analyst James Preissler. "As long as they're growing traffic that's what's really important."

Layoffs?

Disney said the new structure will integrate management, align interests and eliminate operational redundancies. The first casualty of the new structure is Infoseek CEO Harry Motro, who will stay on board until the merger is complete and then leave.

Disney said Motro "has chosen to leave."

"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", said Motro in a statement.

Wadsworth said there is overlap, but Go.com has plenty of positions open so many employees may just be moved around.

"I wouldn't characterize it as a lot of overlap," said Wadsworth. "We haven't been as efficient at doing somethings. Everybody is valuable and we need people."

Wadsworth added that back office and administrative jobs "would be looked at."