CNet's Snap!, online community Xoom.com Inc. (Nasdaq: XMCM) and General Electric Co.'s (NYSE: GE) NBC announced plans on Monday to merge their online properties under one roof - a new public company called NBCi.
In midday trading, shares of Xoom were up 5 7/8 to 81, or 8 percent, CNet (Nasdaq: CNET) added more than 8 percent to 123 9/16 and GE slipped a bit to 109 9/16.
NBCi, will be NBC's "exclusive general portal/community/e-commerce Internet commitment," said the companies in a release. Snap.com will be the front-door to NBCi.
In addition to Snap and Xoom, NBCi will include NBC properties such NBC.com, Interactive Neighborhood (IN), Videoseeker.com, and a 10 percent ownership stake in the new CNBC.com, which will be launched this summer.
Officials said the goal for NBCi was to be a top five Web player. NBCi sites would now rank seven in reach, but would be higher if MSNBC.com was lumped into the equation. MSNBC.com is not part of the transaction and will remain a 50-50 joint venture between NBC and Microsoft, the company said.
After the Xoom-Snap-NBC merger, which is expected to close in the summer. New shares of NBCi will be issued and trade on the Nasdaq, said officials. For now, investors will trade Xoom shares as a proxy.
Bob Wright, CEO of NBC, will become the chairman of NBCi. Chris Kitze, the chairman of Xoom (chart), will be CEO of NBCi. The deal is expected to close by year-end.
On a conference call, Kitze said the combined entity will have annual revenue of roughly $70 million. Xoom, which just completed a $130 million secondary offering, gets nearly 70 percent of its revenue from e-commerce and was expected to have sales of about $30 million this year.
Officials said NBCi will be able to reach "the viewers, users, members and buyers."
NBC in charge
Aside from combining its Internet properties, NBC nets a nice chunk of ad revenue. NBC and NBCi have entered into an agreement for NBCi to acquire $380 million in NBC TV Network advertising over the next four years. The companies have targeted an additional $500 million in advertising over the following six years.
In addition, NBC could wind up controlling the new entity. NBC will own a 49.9 percent stake in NBCi and will have six of the 13 board seats. NBC will also purchase a convertible debt instrument which, if converted, could give NBC the majority of the board. If the debt is converted, NBC would own a 53 percent stake in NBCi, CNet and Snap.com option holders would own a 13 percent stake and Xoom shareholders and its option holders would own a 34 percent stake.
"This is a positive for NBC," said Daniel King, an analyst at LaSalle St. Securities. "NBC gets to work more closely with Xoom and CNet and can learn how to operate like a hypergrowth Internet company."
Based on Xoom's market capitalization and stake, the deal is valued at about $4 billion. Xoom essentially bought Snap and then will be folded into NBCi.
"As Xoom's largest shareholder, I feel like I got a good deal," said Kitze.
GE: A giant wakes up
General Electric Co., which owns NBC, has been a sleeping giant on the Internet, as CBS and ABC have been growing out their presence on the Web. CBS has an equity stake in Marketwatch.com (Nasdaq: MKTW), for example. ABC is part of the Walt Disney Co. (NYSE: DIS), which owns 45 percent of Infoseek Inc. (Nasdaq: SEEK) and provides most many resources to Go.com, the venture between Disney and Infoseek.
NBC officials said NBCi would get exclusive use of the fabled peacock. Go.com doesn't get the mouse ears.
The NBCi announcement gives NBC a head start on rival CBS, which has been rumored a similar package of its Internet properties.
Bob Wright, CEO of NBC, said NBCi would take advantage of its stake in ValueVision, an online and TV shopping channel, and may eventually tap into GE synergies such with cash cows such as GE Capital.
Wright's comments mesh with those of GE chief John Welsh Jr., who outlined how the giant would embrace e-commerce with a strategy dubbed DestroyYourBusiness.com.
CNet gains exposure
Aside from its stake in Snap.com, CNet will work more closely with NBC and get more promotion over NBC.
CNet and NBC said Monday they will jointly produce a weekly TV show about technology and the Internet to air on CNBC. The one-hour program will air on Saturdays and Sundays at 4 p.m. PM EST, beginning in October. The show will be produced out of CNet's San Francisco's studios.
King said CNet should benefit from the added exposure via NBC and Snap.com. "CNet has loads of content it can distribute through NBCi and Snap.com," said King.
Since the NBCi is the first merger of a traditional broadcaster and an Internet company such as Xoom, it will inevitably be compared to the reportedly doomed USA Networks-Lycos merger.
On a conference call, Kitze made sure he contrasted the NBCi deal with USA-Lycos. "We're the only pure Internet play associated with a major media brand," he said after noting that USA-Lycos included some of USA's offline properties.
Lycos shares gained 10 percent on hopes that USA would back off its acquisition plans. "If the deal falls apart it is better for Lycos in the long term," said Bruce Smith, an analyst with Jeffries & Co.
King said it's hard to compare the two situations. USA-Lycos was put together to create an e-commerce giant. NBCi will be more of a portal/media play.
But concerns about putting together offline and online properties are still there. King said NBC could learn a lot from its Net partners, but could also "bureaucratize" operations. Analysts said there have been complaints the Disney-Infoseek Go.com venture moves too slow.
NBC officials and CNet CEO Halsey Minor, who has worked with NBC through the Snap venture, said GE's philosophy was to be active, but not meddling.
Wall Street will be watching. "If NBC were to bureaucratize it would raise some concerns," said King.