| BUSINESSWEEK ONLINE : FEBRUARY 1, 1999 ISSUE | ||||||||
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| NEWS: ANALYSIS & COMMENTARY
Is the Net a Bargain at Any Price? So far, premiums for cyber-companies aren't scaring off bidders It was a veritable feeding frenzy. No fewer than seven big-name suitors had come calling before Excite Inc. (XCIT) agreed on Jan. 19 to be swallowed up by At Home Corp. (ATHM) for a staggering $7.5 billion or $120 a share--a 78% premium over its share price the previous trading day. The shoppers included giants Sony (SNE), Time Warner (TWX), Disney (DIS), NBC, and News Corp. (NWS)--all of which hoped to use the Internet-portal company to give them a firmer footing in cyberspace. Microsoft Corp. (MSFT) and Yahoo! Inc. (YHOO) were in the hunt, too. Excite CEO George Bell says offers were still coming in as he was hammering out his pact with At Home. ''I was getting an offer from one company over the weekend that went up every day,'' says Bell. ''It was very competitive.'' In the end, only At Home could stomach the premium that makes Excite the priciest Internet prize to date. ''They all wanted to buy into the company at lower prices,'' says Geoffrey Y. Yang, an Excite director and venture capitalist. Explains Yahoo! President and Chief Operating Officer Jeff Mallett: ''Up to a certain price, anything makes sense. But this didn't make sense to us.'' SEE YA LATER. That's not to say these bidders might not be back--and ready to pay even more if necessary--to shore up their Web strategies. The pace of mergers continues to accelerate, even though Net valuations have soared an average of 154% in the past year. Some 247 Internet deals valued at $16 billion have been inked since July, 1998, vs. 167 deals in the previous six months, according to New York-based researcher CommScan. Analysts, bankers, and high-tech executives expect merger mania to continue. Microsoft, Yahoo!, NBC, and telecom giants such as AT&T (T) are all likely buyers. Why would they pay these prices for fledgling upstarts, many of which don't turn a profit? ''Companies that want to be major players in this business have no choice but to buy or to merge,'' says Internet analyst Barry Parr at International Data Corp. At Home Chairman Thomas Jermoluk says of the Excite deal: ''This accelerates us three to four years.'' Industry sources say Internet portal Lycos Inc. (LCOS), with 5 million registered users, will be among the next to go. ''We're not in a hurry,'' says Jan Horsfall, Lycos' vice-president for marketing. ''We continue to do due diligence and look for a partner.'' Pointcast Inc., a former Net highflier, is also expected to be taken out soon by a group of regional Bell companies intent on using the Web service to launch a portal of their own, according to industry sources. Pointcast declines comment. Bankers and high-tech execs figure that companies such as Geocities, Sportsline USA, theglobe.com, and Marketwatch.com could become takeover bait. These players have established Web brands, but they're too small to survive on their own. ''Internet service providers are eyeing the electronic-commerce revenue stream,'' says Ford Cavallari, vice-president for the Internet strategy practice at Renaissance Worldwide, a Boston management consultant. ''The portals have the customers. Neither of them alone has unlocked E-commerce revenues.'' AVALANCHE. Further out, analysts and bankers predict that both Excite and Yahoo! could cut deals with major media companies such as Time Warner or News Corp. to attract the avalanche of new users expected to hit the Web. ''We believe they need media partners,'' says IDC's Parr. News Corp. Chairman Rupert Murdoch has said the prices are too rich for his blood. But Web deals made by other media players that looked pricey just a few months ago now look like bargains. In late 1997, CBS Corp. (CBS) provided $30 million worth of promotions in exchange for 50% of Marketwatch.com. Since that company went public on Jan. 15--and the stock rose 474% on its first day of trading--CBS's stake has risen to roughly $400 million. Walt Disney Co.'s (DIS) 43% stake in Infoseek Corp. has doubled from $965 million to $1.96 billion since November. Excite's Bell says companies that are scared off by today's valuations are shortsighted. ''The premium is in the future,'' says Bell. ''If we do even reasonably well at the things we have in front of us, this deal will look cheap.'' That depends on who's looking. By Linda Himelstein in San Mateo, Calif., with Richard Siklos in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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