The Day Ahead: Web pioneer Spyglass dies happy

When Web pioneers die, they often die smiling. OpenTV paid a hefty premium for Spyglass, the company that helped create the Web browser
Written by Larry Dignan, Contributor

When Web pioneers die, they often die smiling. OpenTV paid a hefty premium for Spyglass, the company that helped create the Web browser, in a stock deal valued at $2.5bn (£1.55bn).

OpenTV, which makes interactive television software, valued Spyglass at $122.28 a share, nearly double Friday's close of 69 7/8.

Congratulations Spyglass shareholders, you've just hit the lotto.

If all this sounds slightly familiar, it should. America Online paid a hefty price for Netscape, another Web pioneer that was trampled by Microsoft. AOL walked away with a browser that lost its dominant market share and a second-rate Netcenter portal.

Netscape execs -- and shareholders -- just walked away with big gains.

And now Spyglass shareholders are laughing.

If you've been a Spyglass shareholder since the company's 1995 IPO, you deserve the premium. Spyglass last issued a stock split in late 1995, and, like Netscape, was walloped by Microsoft, which licenced Spyglass software to create its Internet Explorer browser.

But give Spyglass credit. It was always ahead of its time. After shares hit a January 1998 low point, Spyglass reinvented itself to focus its software on Internet devices and interactive television. Those trendy Internet gadgets are all the rage now, but some folks thought Spyglass was a bit wacky back in 1998.

A series of key partnerships paid off nicely for Spyglass, which sometimes failed to impress Wall Street with its quarterly results. Pacts with Sony, IBM, Motorola and Nokia were crucial when it came to wooing a potential buyer.

And Spyglass needed a buyer. Why? In the new economy, new companies always look better than older ones. Spyglass closed Friday with a market capitalisation of roughly $1.2bn. The young and profitless OpenTV and competitor Liberate Technologies both tipped the scales with market caps topping $7bn.

Liberate and OpenTV, which both went public last year, were going to face Spyglass in the set-top box market because Spyglass was hooked up with General Instrument, a set-top box maker acquired by Motorola. But Spyglass, which actually knew what a profit looked like, was never going to catch OpenTV and Liberate in terms of market cap.

Simply put, new and unproven is usually better than having a track record.

So Spyglass sold out.

According to press statements -- there's an analyst call at 10:30 a.m. ET -- the combination of OpenTV and Spyglass will mesh leading interactive television software with wireless Internet products and services.

Like most mergers, it'll be a synergy fest. "We will drive the future development of the digital interactive television and wireless communications markets," said Jan Steenkamp, CEO of OpenTV, in a statement. "With the combination of Spyglass' cutting-edge Device Mosaic technology and the broadband market coming of age, we will expand our offering."

The companies will leverage a bunch of key partnerships. OpenTV recently inked a deal with Echostar, and is supported by AOL, Liberty Digital, News Corporation, Time Warner and Sun Microsystems.

The merger looks good on paper, until you get to the price tag. Although OpenTV is playing with funny money (inflated stock), Steenkamp will most likely have to defend the premium. Spyglass stockholders will receive 0.7236 OpenTV Series A ordinary shares in exchange for each share of Spyglass common stock. That means Spyglass shareholders will get 18 percent of OpenTV.

Not a bad deal for a fading Web pioneer.

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