Yahoo buys GeoCities

In a move to strengthen its position as the leading Web portal, Yahoo today announced that it has signed an agreement to acquire GeoCities, a maker of personal publishing tools and Web-based communities, in a stock deal worth about $3.56 billion and $1 billion in options.

Shares of GeoCities skyrocketed 42.25 points or 56.33 percent to close at 117.25, beating the company's previous high of 84. The stock has traded as low as 13.25 during the past 52 weeks. GeoCities went public in August and saw its shares soar 120 percent on its first day of trading.

Also today, Yahoo shares jumped 31.88 points or 9.49 percent to 367.75. The stock has traded as high as 445 and as low as 38.41 during the past 52 weeks.

While other major Internet players seem to be forming alliances with high-speed access companies, Yahoo moved to extend its reach as a pure Internet brand name.

"GeoCities has defined and popularized community on the Web," Yahoo president Jeff Mallett said in an interview with CNET News.com. "And wow, as a bonus, it added, looking at December figures, an incremental 10 points of unduplicated reach to the Yahoo network. We'll take that."

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America Online recently cut a deal with Bell Atlantic that marked a significant step forward in AOL's efforts to win a place for itself in the broadband world. And just last week, @Home, a cable operator that provides high-speed Internet access, moved to acquire Web portal Excite for $6.7 billion.

"Yahoo's acquisition of GeoCities was obviously not a broadband move or an access move," said Anya Sacharow, an analyst at Jupiter Communications. "Yahoo is committing itself to extending its reach by acquiring another Internet intrinsic brand."

Yahoo is in a different position compared to other Internet firms, other analysts said.

"Yahoo has really prided itself on being an Internet brand," said Sacharow. "People who don't even have email or have never been online know what Yahoo is."

Because of its reach, Yahoo may not have to play the broadband access card, some analysts said.

"Whether their customers have high-speed access or just conventional access really doesn't make too big a difference for them," said Eric Melloul, an analyst at equity research firm Argus Research. "Of course, they will work to have content for those accessing through high-speed connections."

"We have developed this business to be platform independent," said Mallett. "We do not want to be reliant on any single point or points of entry for distribution."

Mallett added that while he thinks the @Home deal will pay off for the cable operator, he didn't think it is wise to tie oneself to one broadband point as a portal.

"I think there will be multiple winners: the RBOCs [regional Bell operating companies], the satellite companies, and cable," said Mallett. "It didn't make sense for us to tie ourselves to one entry point."

GeoCities was founded in 1994 and pioneered the Web community experience. With more than 3.5 million sites authored and hosted on GeoCities, the company has built one of the Web's largest communities.

GeoCities has a market value of about $2.3 billion.

"We predicted in one of our studies recently that community sites based on any single tool like home page publishing or just community tools didn't have a viable stand-alone business model," said Sacharow. "We said they will either be acquired or will consolidate."

With the addition of GeoCities to the Yahoo network, the companies expect their combined unduplicated home-work reach to exceed 58 percent, which would make it the second-largest network of properties on the Web.

"What Yahoo gains through GeoCities is integrating community and making it much more functional," said Sacharow. "They will incorporate it in a way that users can really use it to help with everyday needs."

Yahoo hopes that GeoCities will provide a powerful platform for distributing Yahoo services to GeoCities' extensive community of members, including shopping, communications, and personalized services.

"This combination will allow us to accelerate our offerings to GeoCities and Yahoo users worldwide," GeoCities chief executive Tom Evans said.

Yahoo, upon completion of the merger, will exchange about 10.6 million shares of Yahoo common stock for approximately 31.4 million shares of GeoCities common stock. Yahoo will also convert about 8.9 million GeoCities stock options into approximately 3 million Yahoo stock options.

Under the terms of the agreement, Yahoo will issue 0.3384 shares of Yahoo common stock for each share of GeoCities common stock. In addition, all outstanding options of GeoCities will be converted into Yahoo options.

The acquisition is expected to be completed in the second quarter of 1999, subject to meeting certain conditions as well as approval by GeoCities shareholders and regulators. It will be accounted for as a pooling of interests and Yahoo expects to record a one-time charge in the second fiscal quarter of 1999 relating to acquisition expenses.

"Part of our growth strategy will be organic growth," said Mallett. "But we will also try to keep ourselves as one of the 'big three' branded companies with an acquisition strategy."

Yahoo's monstrous stock valuation is likely to help the company in its bid to acquire other firms.

"You bet," said Mallett. "That's one of the great things about [high valuation]."