Disney to Buy Rest of Infoseek, Boost Portal

Moving to consolidate its scattered Internet properties and package them for investors, Walt Disney Co. on Monday said it will acquire the 58% of Infoseek Corp. it does not already own and issue a new stock to track its online businesses.

That portion of Infoseek was valued at $1.6 billion at Monday’s market close.

The transaction is designed to bring Disney’s online efforts, which include Web sites operated by such strong units as ABC in broadcast television, ESPN in cable television and Disney film production companies, under stronger centralized management. The media giant will create a new company centered around its Go.com portal site and make its financial performance as a stand-alone enterprise clearer for investors.

The move is part of Disney’s ongoing effort to remake itself for the Internet age--and stake a claim to some of the stock market riches that have fallen to online firms even as they eluded traditional media conglomerates.

Disney Chairman Michael Eisner said in an interview that Go’s new structure and so-called “tracking” stock will make it easier for the unit to recruit talent, make further acquisitions and tap the online potential of Disney’s extensive movie and television holdings.

A tracking stock typically gives owners no vote on management issues and no legal right to the underlying enterprise’s assets. It is designed, however, to give investors a clear picture of the financial performance of an operating subsidiary.

Disney’s approach may also become a model for other traditional media companies looking to exploit the market value of their online subsidiaries. Among the media conglomerates developing Internet sites are Viacom, whose sites are spinoffs of its Nickelodeon and MTV cable channels, and NBC, which anticipates that a soon-to-launch, enhanced CNBC.com will build on the popularity of its CNBC business cable channel.

Nevertheless, industry analysts said Monday that key portions of Disney’s Internet strategy remain unclear. For one thing, the company has not yet picked a management team to run the new enterprise. In fact, Infoseek’s top executive said he will leave the company as soon as the deal is completed, marking the latest in a series of high-profile departures from Disney’s online talent pool.

“We don’t know who’s running this new company,” said Alan Braverman, an analyst at Banc of America Securities in New York. “I have a lot of faith in Michael Eisner, but on the Internet you can get run over pretty quickly.”

Infoseek shares tumbled $5.56 to $45.94 on Nasdaq, while Disney shares inched up 19 cents to $27.81 on the New York Stock Exchange. Some analysts speculated that Infoseek fell so sharply because of the difficulty its shareholders face in appraising the value of the tracking stock they will receive in exchange for their shares.

Disney said, however, that the combined businesses would generate revenue of $350 million in the current fiscal year. The company did not specify the value of the assets it will contribute to the merged company. But the market value of the newly created company would surpass $5 billion, based on Disney’s assertion that the assets it is contributing are equal in value to Infoseek. That company had a market value of $2.8 billion at Monday’s close.

Under the terms of the deal, Infoseek shareholders will receive 1.15 shares of Go.com for each Infoseek share. Disney, which owns 42% of Infoseek, will own about 72% of Go.com following the merger.

The transaction, which still requires the approval of shareholders, is expected to close by the end of the year. Shares of Go.com are expected to trade on the New York Stock Exchange under the symbol GO.

Eisner called the deal a “historic moment” for Disney, a key step positioning the company for a future in which the Internet delivers the kind of entertainment content for which Disney is famous.

“This is the beginning of the distribution revolution,” Eisner said. “E-mail, personalized pages and other utilities are all very important. But the driving force is going to be what Walt Disney himself kept doing: marrying technology to entertainment and information.”

Disney, the world’s second-largest entertainment company after Time Warner, already owns many top-ranked Internet sites, including ESPN.com, ABCNews.com, Disney Online and others.

But the company has had its share of struggles in the new medium. Its Go.com network of sites, centered around a search engine provided by Infoseek, was launched to great fanfare in January. But its share of the Internet audience slipped from 39% in January to 34% in May, according to research firm MediaMetrix.

Disney has also lost several key employees, including Jake Winebaum, who resigned as head of its Internet division last month to start an Internet investment company.

Many saw that departure and others as a sign that Disney could not compete with the riches that pure Internet firms often bestow on employees through stock options.

Eisner scoffed at that notion, stressing that employee turnover at Disney is no greater than that of most Silicon Valley companies. But he acknowledged that issuing Go.com stock will give the company “currency in the Internet world.”

Eisner said Disney will assemble a management team for Go.com before the deal closes. In the interim, the company will be run by an executive team headed by Thomas Staggs, chief financial officer of Disney.

An apparent casualty of the transaction is Harry Motro, chief executive of Infoseek, who said he will leave the company after the merger to spend more time with his family.

Infoseek, based in Sunnyvale, Calif., is respected for its search engine technology, but it has long trailed Yahoo Inc. and other portal sites in popularity. Infoseek posted a net loss of $42.2 million on revenue of $59.8 million for the six months ended April 3.

Monday’s deal had been anticipated since Disney took a minority stake in Infoseek last year. In fact, the companies issued a statement last month saying they were in merger discussions.