Media companies make Net IPO push
Traditional media companies that have watched their Net-only counterparts shoot past them in valuation are spinning off their own online units to cash in on Wall Street's Internet fever.
Valuations for Net stocks have been riding high as investors have been eager to snap up stock in these new public offerings. In the past few weeks, several Internet companies have raised the pricing range of their IPOs by margins of 50 percent or greater, as investors have shown great demand for these stocks.
Offline media companies have to contend not only with the rising valuations of their online competitors, but also with the task of retaining consumers' eyeballs as the Internet increasingly has become a mainstream information and entertainment medium.
The New York Times Company, for example, said earlier this week that it will create Times Company Digital, which will consolidate the media company's nearly 50 Web sites, including the online version of the New York Times, Boston.com, and Wine Today.
Meanwhile, media giant Bertelsmann today confirmed it is looking at selling stock in several of its Internet operations as a way to pump up its coffers for other acquisitions, according to the New York Times.
And technology publisher and research company IDG reportedly is moving toward getting a number of its Internet operations folded into one unit for an eventual initial public offering, sources said.
Forbes, too, reportedly is studying the possibility of spinning off its Web site into an IPO, according to TheStreet.com.
Investment bankers point to several reasons for why media companies are being driven to examine this strategy.
"Many are setting up separate Internet operations because they want to move faster than their traditional offline business," said Scott Ryles, a banker with Merrill Lynch.
He added that a number of media companies are jumping in now, as opposed to earlier, because they have studied the issues.
"When the Internet valuations started to rapidly increase, people wanted to see if it was sustainable," Ryles said. "Two, people were skeptical that the Internet would be the dominant communication medium that it has become. And third, with a rapidly changing market, it takes time for larger companies to be successful in doing it."
Mark Menell, cohead of West Coast technology mergers and acquisitions for Morgan Stanley Dean Witter, said media companies are driven to Internet spin-offs for strategic reasons, as well.
"There are a lot of mergers that are occurring within the industry, and it's easier to use Internet currency. This allows them to make strategic Internet acquisitions without diluting the parent company's stock," Menell said.
Traditional media companies that have created Internet spin-offs can use the stock from those companies as currency to make acquisitions.
Menell added, "There isn't a week that goes by that we don't get a half-dozen calls from traditional clients about how to recognize the value of their portfolio of Internet assets."
Ryles pointed to the deal last year in which Disney took a 43 percent stake in Infoseek as the first notable transaction in which a media company spun off some of its Internet operations.
Under the arrangement, Disney, Infoseek, and the media company's former Starwave unit formed a joint venture, creating the Go Network.
"Disney realized they needed to have a different entity that they didn't control," Ryles said. "In the past, Disney always had the view that they had to own the brand. But in this case, they realized they had to have another vehicle that was related to them but separate in order to accomplish their goals."