CitySearch, Zip2 to merge in $300 million deal

Online city guide CitySearch Inc. and city guide developer Zip2 Corp.

Online city guide CitySearch Inc. and city guide developer Zip2 Corp. will announce on Monday an agreement to merge their companies in a deal worth about $300 million.

The combined company, which will retain the CitySearch name, will be an entity with approximately 700 employees and coverage in 175 cities, including Zip2's online directory service. Executives from the two sides said the deal will not result in layoffs. The new company will be based in Mountain View, Calif.

'True merger of equals'
Charles Conn, the chief executive of CitySearch, will become executive chairman, while Elon Musk, his counterpart at Zip2, will become vice chairman as well as executive vice president of product and technology. Conn is 36 and Musk is 26.

Rich Sorkin, currently the CEO of Zip2, will become the chief executive of CitySearch.

It was unclear how the merger would affect Zip2's customer relationships. Zip2 has had a hand in building sites for CitySearch competitors such as Microsoft Corp.'s Sidewalk and New York Today, the New York Times' online city guide.

"This is a true merger of equals," Musk said. "This isn't a merger motivated by rationalization or something else. The reason for this merger is category leadership and meeting demand that we see in the market."

"Both of our companies were on a roll and meeting their numbers -- as well as investor expectations," said Conn. "This is about being the category leader. We've found that being No. 1 in a category seems to matter more than being numbers 2 or 3."

IPO likely
Conn said that CitySearch intends to file for an initial public offering but was unable to be more precise.

"You never know about timing, but part of being the category leader is going public," according to Conn. He added that both companies had independently examined going public before entering serious merger discussions around Christmas.

Conn said he expects the combined CitySearch to break even sometime next year.

Both Zip2 and CitySearch had successfully raised funds on their own. Zip2 has raised $44 million in financing while CitySearch raised $34 million from a group led by Barry Diller's HSN Inc. One of the larger investors in Zip2 is Softbank -- the parent of Ziff-Davis Inc. (ZDNN is a unit of Ziff-Davis.)

The deal will be accounted for as a pooling of interests.