THE MARKET MIDDAY
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Yahoo! Storms the Gates of GeoCities
Internet consolidation continued today with the announcement by top Web portal Yahoo! (Nasdaq: YHOO) that it will buy GeoCities (Nasdaq: GCTY), the leading webpage hosting community, in a stock deal valued at around $3.6 billion. Shares of GeoCities soared nearly 50% to $112 1/4 a share on the news as the merger calls for a stock swap of 0.3384 shares of Yahoo! for each share of GeoCities. Altogether, Yahoo! will issue about 10.6 million new shares for approximately 31.4 million shares of GeoCities. Yahoo! will also convert 8.9 million shares of GeoCities stock options into more than 3 million Yahoo! options.
Despite this dilution, Yahoo!'s stock also gained $15 1/8 to $351 since the agreement is seen as strengthening the company's overall online offerings as the competitive landscape continues to change rapidly. Rival America Online (NYSE: AOL) will soon marry Netscape Communications (Nasdaq: NSCP) while number two portal player Excite (Nasdaq: XCIT) has agreed to become a part of high-speed Internet access provider @Home (Nasdaq: ATHM). Meanwhile, Compaq (NYSE: CPQ) has been beefing up its Alta Vista search site in preparation for a public offering. Also, Disney (NYSE: DIS), which acquired a 43% stake in Infoseek (Nasdaq: SEEK) last June, recently started heavy promotion of its Go portal, and General Electric's (NYSE: GE) NBC has been pushing Snap!, a portal produced with partner Cnet (Nasdaq: CNET).
GeoCities is a community of personal websites with more than 3.5 million "homesteaders" who have put up 33 million content pages. The site attracted 19 million unique visitors last month for a 33.4% reach. While those number pale next to Yahoo!'s 35 million unique registered members, GeoCities claims a 74% broader reach than its closest competitor, according to Media Metrix. Yahoo! says the combined companies will have an unduplicated reach of more than 58%, making it the second-largest network of Web properties. But reach alone doesn't tell the story. By distributing GeoCities' easy to use Web editing tools, Yahoo! should be able to improve customer loyalty. At the same time, cross-marketing opportunities should enhance something like Yahoo! Classifieds, which faces stiff competition from eBay (Nasdaq: EBAY).
Though Yahoo! has focused on internal growth, this acquisition is not a complete shock. Japan's Softbank has roughly a 30% stake in both Yahoo! and GeoCities -- along with stakes in E*Trade (Nasdaq: EGRP), Ziff Davis (NYSE: ZD), and CyberCash (Nasdaq: CYCH). Yahoo! also paid $5 million for a minority stake in GeoCities last year. Still, the move suggests that the leading Internet brands, like Yahoo!, may increasingly use their stock to enhance their competitive positions. Indeed, it seems likely that no Internet company with a unique or meaningful product offering will escape being gobbled up by the major players whose stock appears so richly valued by traditional metrics. Compaq's recent move to acquire Shopping.com (Nasdaq: IBUY) suggests that even issues of dubious value may become takeover fodder. That's one reason a host of Web issues rose this morning, with TheGlobe.com (Nasdaq: TGLO) up $9 3/8 to $48 7/8 and Xoom.com (Nasdaq: XMCM) up $10 1/8 to $49 11/16.
Check out the Fool's StockTalk interview earlier this month with GeoCities President and CEO Tom Evans.
Online services conglomerate America Online (NYSE: AOL) gained $7 15/16 to $172 13/16 after late yesterday reporting fiscal second quarter earnings of $0.17 per share, up from $0.04 per share last year and ahead of the First Call mean estimate of $0.14 per share. The company also said it will split its stock 2-for-1 effective February 22. Merger mate Netscape Communications (Nasdaq: NSCP) added $4 5/16 to $73 9/16.
Media giant Walt Disney Co. (NYSE: DIS) picked up $15/16 to $33 7/8 after Morgan Stanley Dean Witter raised its rating to "strong buy" from "outperform" with a 12-month price target of $42 per share. The gain erased much of yesterday's 4.7% drop after the company posted fiscal Q1 EPS of $0.23 (excluding benefits), a penny short of analysts' estimates.
Live entertainment events promoter and venue operator SFX Entertainment (Nasdaq: SFXE) rocked its way $4 1/2 higher to $61 7/8 after agreeing to acquire privately held sports marketing firm Integrated Sports International for $14.1 million in cash and 60,000 SFX shares. Integrated Sports has a stable of corporate and sports team clients as well as athletes such as Hakeem Olajuwon and Steve Young.
Number 2 U.S. automaker Ford Motor Co. (NYSE: F) put it in gear and drove $7/8 higher to $61 3/16 after agreeing to acquire the automobile-related assets of Sweden's Volvo (Nasdaq: VOLVY) for $6.45 billion. The deal is expected to add to earnings within the first year, Ford reportedly said at a news conference. Volvo will focus on its highly profitable heavy-duty truck, bus, and construction equipment operations. For more details on the deal, see this morning's Breakfast With the Fool.
Chip giant Intel Corp. (Nasdaq: INTC) moved up $3 25/32 to $136 17/32 after setting a two-for-one stock split effective April 11. The company also said it will boost its quarterly dividend to $0.03 per share from $0.02 per share.
Semiconductor etch and chemical mechanical planarization equipment maker LAM Research (Nasdaq: LRCX) rose $2 1/8 to $32 13/16 thanks to a Needham & Co. upgrade to "buy" from "hold."
Swedish mobile phone supplier Ericsson AB (Nasdaq: ERICY) rang up $1 15/16 to $27 1/8 after reporting that its Q4 net income dropped by 3% year-over-year in local currency terms, which was not quite as bad as analysts had been expecting.
Internet services company Exodus Communications (Nasdaq: EXDS) journeyed $8 5/16 higher to $94 3/8 after reporting a Q4 loss of $1.00 per share (excluding acquisition charges), which was in line with the Zacks mean estimate. The company also announced a two-for-one stock split and the acquisition of privately held co-location and web hosting services firm American Information Systems Inc. for undisclosed terms.
British aerospace and auto parts maker LucasVarity (NYSE: LVA) gained $1 1/16 to $47 3/4 after the company agreed to merge with airbag and seatbelt maker TRW Inc. (NYSE: TRW) for $7 billion in cash. TRW rose $1 3/16 to $52 5/16 on the news. Fellow auto parts maker Federal-Mogul (NYSE: FMO), which offered about $500 million less for the company and was rebuked earlier this week, fell $1 3/8 to $58 13/16.
Fort Wayne, Indiana-based flat-rolled steel minimill operator Steel Dynamics (Nasdaq: STLD) tacked on $1 5/8 to $15 3/8 after Salomon Smith Barney raised its rating to "buy" from "neutral." Minimill originator Nucor Corp. (NYSE: NUE), which received an identical upgrade from the brokerage, rose $2 1/8 to $48 7/8.
Allegheny Teledyne (NYSE: ALT) up $7/8 to $20 7/16; Q4 EPS: $0.39 (before one-time items) vs. $0.42 last year; estimate: $0.35
Convergys Corp. (NYSE: CVG) up $1 15/16 to $18 1/8; Q4 EPS: $0.22 vs. $0.21 (excluding charges) last year; estimate: $0.19
Deltek Systems (Nasdaq: DLTK) up $1 7/8 to $19 1/8; Q4 EPS: $0.24 (excluding charges) vs. $0.18 last year; estimate: $0.23
Gilead Sciences (Nasdaq: GILD) up $1 3/4 to $41 3/8; Q4 EPS: loss of $0.53 vs. loss of $0.42 last year; estimate: loss of $0.59
Greg Manning Auctions (Nasdaq: GMAI) up $1 13/16 to $13 5/16; Q4 EPS: profit of $0.04 vs. loss of $0.14 last year; no estimates
New Era of Networks (Nasdaq: NEON) up $6 to $61; Q4 EPS: $0.15 (excluding charges) vs. $0.03 last year; estimate: $0.08
Revlon Inc. (NYSE: REV) up $15/16 to $17 1/8; Q4 EPS: $0.13 (before charges) vs. $0.71 last year; estimate: $0.10
Ryland Group (NYSE: RYL) up $1 7/16 to $25; Q4 EPS: $1.12 vs. $0.62 last year; estimate: $0.98
Stryker Corp. (NYSE: SYK) up $7 7/8 to $59 3/8; Q4 EPS: $0.45 (excluding acquisition charges) vs. $0.38 last year; estimate: $0.43
Ticketmaster Online-CitySearch (Nasdaq: TMCS) up $4 5/16 to $63 1/8; Q4 EPS: loss of $0.26 vs. loss of $0.35 last year; estimate: loss of $0.31
Optical products and services retailer U.S. Vision (Nasdaq: USVI) blurred $1 1/16 to $6 7/8 on last night's news that it expects Q4 EPS of between $0.04 and $0.06, down from last year's dime profit and the four-analyst $0.14 projection reported by First Call. The company blamed reduced traffic in its J.C. Penney (NYSE: JCP) locations, among other factors, for the shortfall but said sales have begun to recover in late January.
Property and casualty reinsurer and specialty insurer Centris Group (NYSE: CGE) fell $2 to $12 1/16 after HCC Insurance Holdings (NYSE: HCC) withdrew its unsolicited bid to buy the 92.2% of Centris it doesn't own for $13.25 per share. Earlier yesterday, Centris CEO David Cargile called the bid "grossly inadequate."
Database technology developer Informix Corp. (Nasdaq: IFMX) lost $1 1/2 to $11 13/16 despite reporting Q4 EPS of $0.13, ahead of last year's $0.05 mark and $0.03 above estimates even after a penny per share charge for December's acquisition of Red Brick Systems. Informix plans to ship the next generation of its Dynamic Server database engine in 1999.
Integrated circuit maker Maxim Integrated Products (Nasdaq: MXIM) dropped $3 9/16 to $49 7/16 as it turned in fiscal Q2 EPS of $0.31, ahead of the year-ago $0.29 mark but flat with market projections. "Although bookings in Q2 did grow substantially over Q1 (which now looks like the low point)," said CEO Jack Gifford in a statement, "Q3's growth (or lack of it) should indicate whether we are just bouncing off the bottom, or whether a growth trend has resumed.''
HA-LO Industries (NYSE: HMK) tumbled $12 15/16 to $22 1/2 after Credit Suisse First Boston downgraded the promotional products distributor and telemarketing services company's stock to "buy" from "strong buy." On Monday, HA-LO announced plans for a 3-for-2 stock split effective Feb. 5.
Self-service solutions software company Edify Corp. (Nasdaq: EDFY) lost $1 3/8 to $8 1/2 on news of Q4 EPS of $0.01, missing last year's $0.08 mark and coming in a penny below market projections. The company also said it will sell privately held RightPoint's one-to-one marketing software products, taking an equity stake in the company.
Front-office automation software developer Vantive Corp. (Nasdaq: VNTV) backed down $1 7/8 to $12 3/4 as the company said recent interaction with the SEC may result in the restatement of earnings for 1998 and the second half of 1997, leading to non-cash charges. Vantive reported Q4 EPS of $0.08, down from $0.17 a year ago but a penny above analysts' consensus, after yesterday's close.
Enterprise software provider Inprise Corp. (Nasdaq: INPR) slumped $7/8 to $5 3/8 after turning in Q4 EPS that, at $0.06, beat last year's figure by a nickel and Street estimates by $0.02. The company said it is forming two divisions, Inprise and borland.com, and the restructuring is expected to result in a 20% job cut.
Barnes Group (NYSE: B) down $1 5/16 to $25 1/8; Q4 EPS $0.37 vs. $0.47 last year; estimate $0.53 (one analyst)
BroadVision (Nasdaq: BVSN) down $2 3/4 to $42 3/8; Q4 EPS $0.08 vs. $0.05 loss last year; estimate: profit of $0.08
Callaway Golf Co. (NYSE: ELY) down $1 1/8 to $10 1/8; Q4 EPS loss of $0.93 vs. $0.34 profit last year; estimate: loss of $0.08
Excel Switching (Nasdaq: XLSW) down $4 5/8 to $29 3/8; Q4 EPS $0.21 (before charges) vs. $0.16 last year; estimate: $0.20
ILOG SA (Nasdaq: ILOGY) down $1 3/8 to $10; fiscal Q2 EPS $0.09 vs. $0.10 last year; estimate: $0.12
Mapics Inc. (Nasdaq: MAPX) down $1 1/8 to $10 13/16; fiscal Q1 EPS $0.26 vs. $0.21 last year; estimate $0.25
Mindspring Enterprises (Nasdaq: MSPG) down $2 3/8 to $107 3/8; Q4 EPS $0.07 (before tax benefit) vs. $0.02 last year; estimate: $0.07
PairGain Technologies (Nasdaq: PAIR) -- down $5/8 to $9 13/16; Q4 EPS: $0.07 (before valuation adjustment) vs. $0.17 last year; estimate: $0.08
Sunstone Hotel Investors (NYSE: SSI) down $1 1/8 to $8 13/16; Q4 FFO $0.27 vs. $0.32 last year; estimate: $0.31
The Stanley Works (NYSE: SWK) down $3/8 to $25 13/16; Q4 EPS $0.29 vs. $0.29 last year; estimate: $0.53
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