BREAKFAST WITH THE FOOL
Tuesday, December 14, 1999
"There are but two ways of paying debt: increase of industry in raising income, increase in thrift in laying out."
-- Thomas Carlyle
Yahoo! Wooing Kmart
Richard McCaffery (TMF Gibson)
The Web portal and retail store wars are heating up.
Internet media company Yahoo! (Nasdaq: YHOO) and retail chain Kmart (NYSE: KM) plan to create an online partnership that includes free Internet access for customers that use Kmart's new website, The Wall Street Journal reported.
A deal is expected to be announced tomorrow.
Under the agreement, customers that use e-commerce website Bluelight.com (good to see Kmart has a sense of humor) will get free Internet access. The service, of course, will be closely integrated with Yahoo!'s media pages.
Two things are interesting about this deal. First, Yahoo! isn't an Internet service provider, but as the Journal points out, it could be a sweet arrangement because Yahoo! gets new customers without having to tangle with the cost and complexity of becoming an ISP.
Second, like pieces advancing on a chess board, the deal helps make it clear which companies are competing on the Web frontier. The agreement puts Yahoo! more directly into battle with America Online (NYSE: AOL), which is not only the leading ISP but is reportedly in talks with retail king Wal-Mart (NYSE: WMT) regarding an Internet alliance.
At formative stages such as these, it's not unreasonable for investors to wonder who AOL and Yahoo! really compete with. At this year's annual shareholder's meeting, AOL Chairman and Chief Executive Steve Case said his primary competitors are Microsoft (Nasdaq: MSFT) and AT&T (NYSE: T).
At next year's meeting will Case include Yahoo! as a competitor? Can we expect Microsoft and AT&T to announce major retail alliances in the future? Will Microsoft enter the Internet access race in ways beyond making significant investments in companies that provide connections?
As an investor, deals like this make it easier to see the chess board. And you can't pick winners unless you know who's fighting.
Of course, there are plenty of unanswered questions. It's unclear exactly how Kmart's supposed ISP service will work. It's also unclear what kind of value agreements between content providers like Yahoo! and AOL and retail chains like Kmart and Wal-Mart will really provide for shareholders, but it's early yet. The players are still lining up, and the execution phase comes next.
News to Go
American Airlines' parent company AMR (NYSE: AMR) plans to spin off its 83% stake in computerized travel system and technology company Sabre Inc. (NYSE: TSG) to shareholders to unlock the company's value. Under the agreement, AMR shareholders will receive 0.7 shares of Sabre stock for every share of AMR. In addition, Sabre will declare a cash dividend of $675 million, or $5.20 per share, to all shareholders in connection with the spin off. The deal is expected to be completed early next year.
PalmPilot manufacturer Palm Computing, a wholly owned subsidiary of 3Com (Nasdaq: COMS) and the number one maker of handheld computing devices, moved forward with plans to go public yesterday by filing its prospectus at the Securities and Exchange Commission. The filing is not yet available, but 3Com said it plans to sell less than 20% of the shares to the public and distribute the remainder to 3Com shareholders about six months after the initial public offering.
AT&T (NYSE: T) wireless affiliate Tritel (Nasdaq: TTEL) priced 9.4 million shares at $18 apiece last night. The stock will begin trading today. Tritel, the last of AT&T's wireless affiliates, is a wireless phone company licensed to provide PCS services to 14 million people in the south-central U.S. Its largest markets include Lexington, Kentucky, Birmingham, Alabama, and Knoxville, Tennessee. AT&T's other affiliates are Triton PCS (Nasdaq: TPCS) and TeleCorp PCS (Nasdaq: TLCP). Both recently went public and have done well.
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