Yahoo! to buy Broadcast.com for $5.7bn

The leading gateway to text -- and graphic-rich Web sites, Yahoo! Inc., Thursday will announce a merger with Broadcast.com, the Dallas company that has said it intended to be a portal for a next generation of Web content that will centre on audio and video programming.

Yahoo!, the product of a pair of Stanford University grads that has become worth $33.5bn (£20.4bn) over a span of less than five years, is expected to pay as much as $130 a share or $5.7 billion to acquire just under 45 million outstanding shares and options of Broadcast.com.

At $130 a share, the merger will make Mark Cuban, the founder of Broadcast.com, the latest Internet billionaire. His 10 million shares would be worth $1.3 billion. Broadcast.com shares closed at 118 and 3/16ths, up 4 and 13/16ths.

Broadcast.com's ability to gather and redistribute audio and video programming, which ranges from corporate earnings conferences to live feeds of sporting events to lingerie shows to movies, will be spread across Yahoo!'s directory of what the Net has to offer. The merger is designed to "turbo-ize" Yahoo!, one industry executive said, as portals transforms themselves into "media engines" for an Internet that will have the bandwidth to provide a wide array of multimedia services that will allow it to become a new type of broadcasting medium.

"As broadband comes along, broadband style like that offered by Broadcast.com becomes more important, not less," Bill Bass, an analyst at Forrester Research Inc., said. While Broadcast.com has stitched together an odd-ball mixture of content of nearly 400 radio station signals, video newscasts from a handful of local television stations along with a sprinkling of movies and made-for-Internet video programming, the service is valuable because it is pioneering the development of systems needed to deliver streaming media on a mass scale, Bass said. "They're sitting on content and a way to get it on the Internet," Bass said. "That's what Yahoo! is looking for."

Although Yahoo! has been developing a broadband initiative dubbed Turbo Yahoo! since early last year, the navigation hub was beginning to be perceived by some as a laggard in the race to high-speed services that ultimately are expected to lay the foundation for the convergence of interactive services delivered via television and the computer. Yahoo! rival Excite got a leg up in the broadband arena earlier this year when it announced its deal to merge with high-speed access provider @Home.

Likewise, the Snap portal joint venture of CNET and NBC this month launch a tailored high-speed version of its navigation hub that is being distributed by partners such as SBC, Bell Atlantic and GTE. The relatively recent entry of competitors such as NBC and Disney -- with its purchase last year of a stake in Infoseek -- is spurring Yahoo! into a string of deals to protect its position in the marketplace. "This is all being driven by the new competition," said David Baltaxe, senior analyst with the Current Analysis market research firm. "You have hitters driving into the portal space. In order to continue to compete, Yahoo! has to expand its roster of brand-name services."

Wall Street is likely to cheer the deal. It's not like investors haven't had time to think about the merger. The Broadcast.com-Yahoo! deal has been one of the worst kept secrets. Reports that the two sides were talking surfaced last week and many analysts have been pondering the combination. "We have been concerned that Yahoo! may be challenged to grow its services fast enough internally to evolve from premier portal to an AOL-like network," wrote BancBoston Robertson Stephens analyst Keith Benjamin in a research note last week. "Given its currency, we believe almost any acquisition would appear additive to earnings sooner than later."

The only hiccup that could derail Yahoo! shares is the premium paid for Broadcast.com and concerns about the portal giant integrating both Geocities Inc., which was purchased in January, and Broadcast.com.

As for the valuation, expect Wall Street to be forgiving. Alex Cheung, portfolio manager at the Monument Internet Fund, said the steep price tag might soon look like a bargain. "It's pricey, yes, but it should be more than worth it," he said. "Think back to the Victoria's Secret event. Where did everyone go? Who was making it possible? It's worth the investment because while there are other competitors, they are quite a bit behind. Yahoo! and Broadcast.com have now moved the curve significantly farther away."

Larry Barrett contributed to this report.