Ticketmaster Will Rejoin Its Net Counterpart

USA Networks said Tuesday that it will combine its Ticketmaster Corp. unit with its Internet cousin Ticketmaster Online-CitySearch in a deal that underscores the increasing overlap between online businesses and their real-world counterparts.

Ticketmaster and Ticketmaster Online were split in August 1998, when investors were clamoring for “dot-com” stocks and companies were anxiously spinning off their Internet operations to cash in on the frenzy.

USA Networks Chairman and Chief Executive Barry Diller, its controlling shareholder, then combined the online ticket retailer with CitySearch, a company that creates city guides for the Web.

Now, Pasadena-based Ticketmaster Online-CitySearch will pay nearly $605 million in stock for Ticketmaster, a wholly owned subsidiary of USA Networks. USA Networks already owns 49% of Ticketmaster Online-CitySearch and will own 68% of the combined company when the deal closes in January.

The combined company, which will be known as Ticketmaster, will eliminate the formidable competition that had developed between the two ticket sellers and help both save money by combining overlapping operations. The deal also will let the companies pool their resources to expand into new categories, executives and analysts said.

“With a joint effort, they will be a lot stronger and they’ll be able to do what they want to do sooner,” said Erin Dailey, an analyst with Red Chip Review, a Portland, Ore., firm that researches small-cap stocks.

But investors seemed to respond negatively to the merger. In Nasdaq trading Tuesday, shares of Ticketmaster Online-CitySearch dropped to a 52-week low of $9.13 before closing at $11.63, down 94 cents. Shares of New York-based USA Networks fell 44 cents to close at $17.56. The shares are down from their 52-week high of $29.06.

The deal was motivated by the growth of online ticket sales. One of four tickets is sold on the Web, and analysts expect that the Internet could handle half of all transactions within two years.

“A couple of years ago, 2% of tickets were sold over the Internet. Now it’s almost 30%,” said Fredrik Tjernstrom, an analyst with Hidden Asset Report in New York. “Within 10 years, maybe every ticket will be sold over the Internet.”

As a result, Ticketmaster and Ticketmaster Online found themselves competing when it made more sense for them to cooperate, said John Pleasants, president and chief executive of Ticketmaster Online-CitySearch.

“Some of the initiatives we’re working on demand tremendous coordination and alignment between the two companies,” said Pleasants, who will become chief executive of the combined Ticketmaster.

For example, Ticketmaster Online is rolling out a system to allow customers to purchase tickets over the Internet and print them out from their computer desktops. That requires a significant amount of computer infrastructure that can be streamlined once the two companies are reunited, Pleasants said.

But company executives and analysts said Ticketmaster Online-CitySearch benefited from its more than two years of independence.

After its initial public offering in December 1998, it used its stock to purchase seven companies to integrate ticketing with online information about concerts, sporting events and other activities. Now the company is looking beyond traditional ticket sales to services like taking restaurant reservations, registering golfers for tee times, selling subway passes online and offering online personal ads.

Reuniting the two companies has been part of Diller’s long-term thinking since the split took place, executives and analysts said. The only question was when the time would be right.

At first, Diller considered a plan to have USA Networks buy Ticketmaster Online-CitySearch, then recombine it with Ticketmaster. But it was simpler to have the online company use its stock as currency to buy Ticketmaster directly. Serious discussions about merging the companies began in earnest about three months ago, Pleasants said.

At that time, Ticketmaster Online-CitySearch’s stock was trading at about $23, twice as much as it is worth now. But even that was significantly below the stock’s all-time high of $80.50, which came in December 1998, shortly after its initial public offering.

Jon Miller, president and chief executive of USA Information Services, the New York-based USA Networks unit that oversees Ticketmaster, said the stock price was not a factor in the decision to merge the units.