Perhaps Barry Diller was right after all.
The Magic Kingdom finally consummated the deal everyone awaited and finally unveiled plans to buy the rest of Infoseek Corp. (Nasdaq: SEEK), thus formally turning the Go Network into a Walt Disney Corp. subsidiary. And as Infoseek shareholders feared, the deal comes in the form of the same shares-of-your-company for shares-of-a-new-company format proposed for Diller's failed attempt at merging USA Networks' assets with Lycos.
Optimistic Infoseek investors and speculators hoped Disney would use Excite's At Home purchase -- an exchange of acquiree shares for those of the acquirer -- as a model, because at least then you can put a specific value on the deal. But like Diller, Disney CEO Michael Eisner is an Old Media sort; those folks got to where they are today because they don't overpay for "potential" goldmines.
That's probably why Diller's Old Math won the day here. Analysts say the deal values Infoseek at about $52 a share, a premium of 0.9 percent, which is to say, virtually no premium at all to Friday's close. To be fair, it should be noted that it's a 40 percent premium from the stock's nadir in early June, just before Disney announced talks with Infoseek.
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Those discussions must have been surreal, since Disney's existing 43 percent stake of Infoseek gives the Kingdom the leverage to approve just about anything. This wasn't a case of the right and left hand negotiating -- more like the right index finger and the right thumb.
Disney portrays its new division, which will publicly trade under a tracking stock (ugh), as an agile, rapidly-moving Internet beast. It's hard to see how, since neither Disney nor Infoseek is particularly nimble or aggressive compared to other online players. Infoseek CEO Harry Motro is cashing out, but the management team announced for the reconstituted Go doesn't bring in anyone from the outside, so where this new speed will come from is anyone's guess.
Motro led the way in matching portals with big media companies, but melding ESPN.com and other sites with Infoseek to create the Go Network took longer than expected. In the meantime, Infoseek -- already seen as a second-tier portal player behind AOL, Yahoo and Microsoft -- fell further behind its rivals, and not even a torrent of promotion on television has pulled Infoseek into the top three, who grab the vast majority of Web advertising, not to mention investor attention.
More important, e-commerce, the supposed Holy Grail of portal development, isn't as visible at Infoseek as it is with Yahoo and AOL, which seem to do everything short of cramming shopping down their users' throats. The Go Network does have a Shopping site, but compare Infoseek's more than 250 merchants with Yahoo's more than 4,000, and you can see how Go has a lot of catching up to do.
Disney will throw in its catalog revenue into the top line of the planned Go Network tracking stock. The warehouse and distribution structure also helps the aforementioned fledgling e-commerce services of Go. And to Disney's credit, the company doesn't expect a huge valuation for those catalog operations, whereas Diller touted the Home Shopping Network was the most valuable item in the USA-Lycos deal.
But overall, you have to wonder whether Go really gets much from this deal, which is probably why the market is frowning on the deal today. Traffic won't change, since Media Metrix already counted all Disney properties under Go's figures. It's hard to see how you can give Go any more airtime than it already gets (does ABC Sports ever have a segment that doesn't mention ESPN.com?), and there's already a decent amount of cross-promotion between websites, so you have to wonder how much more marketing Go will get.
Merging with Disney doesn't solve the main problem that Infoseek faces: how to stand out among a sea of similar-looking portals. Why would someone who uses Yahoo or America Online switch to Infoseek? For that matter, why would the vast majority of Web surfers who don't use portals at all go to Infoseek? As the Internet audience matures and learns to find its own way around the Web, portals are going to have a harder time matching their growth with the growth of the overall Internet.
Those questions combine with a deal whose value remains uncertain at best. That's why investors aren't hanging around the today.
Sequent Corp. (Nasdaq: SQNT) Today's announcement of IBM's purchase of Sequent confirms another deal long expected. And as with Disney-Infoseek, IBM isn't paying much of a premium from Friday's close, although the price is about twice what Sequent was trading at in April. Sequent is a money loser now, but count on IBM to take care of that as it brings in the highly-touted technology.
CBT Group Plc (Nasdaq: CBTSY) Morgan Stanley Dean Witter upgraded the world's largest provider of training software to "outperform" from "neutral" and set a price target of $30. The stock of CBT -- whose software teaches people to use applications from Lotus, Oracle, Microsoft and others -- remains far below its peak a year ago, but it has been climbing in recent months as observers believe the company has shaken free of last fall's turmoil.
The overall market was mixed in mid-afternoon trading. The Nasdaq Composite Index was up 12.17 to 2805.24, the S&P 500 down 2.35 to 1400.93, and the Dow Jones Industrial Average higher 7.28 to 11200.98. 22GO>