Net on the virtual town with CitySearch
Barry Diller’s USA Networks will extend its presence on the Internet and its localism strategy by buying control of Internet company CitySearch Inc., which it plans to merge into Ticketmaster Online to create a $600 million company, sources said Wednesday.
USA subsequently plans to spin off the merged company, to be called Ticketmaster Online-CitySearch, through a public offering, sources said.
The deal means cancellation of an upcoming initial public offering for CitySearch that would have raised $59 million, but USA has committed to inject $50 million in cash into the company as soon as the deal is signed, which was expected late Wednesday.
USA declined comment Wednesday evening, while CitySearch execs were unavailable for comment. The deal is expected to be announced today.
The new company will be owned 62.5% by USA and 37.5% by CitySearch’s existing shareholders, which include compa-nies like Washingtonpost.Newsweek Interactive, Times Mirror Co. and American Express, sources said.
People close to the deal said it was a smart strategic step for both USA and CitySearch.
The nature of Ticketmaster’s business, selling tickets to entertainment events, is clearly quite local and should fit well with CitySearch, which operates Web sites offering information about local entertainment, news and other community activities for major cities around the country.
While the Ticketmaster and CitySearch Web sites will remain separate, sources said content from each will be integrated into the other. Someone reading about a play on a CitySearch site, for instance, would easily be able to click into the Ticketmaster site to buy tickets to the play.
CitySearch currently operates less than a dozen sites, but would quickly expand in the wake of the deal. USA wants to help CitySearch find partners for new sites.
The acquisition also fits with USA’s broadcasting strategy of developing a network of TV stations whose programming is heavily local.
Diller believes the merged Ticketmaster Online-CitySearch will be the dominant player in the local information and transaction part of the Internet, sources said.
CitySearch will also benefit from having a deep-pocketed partner to help fight off competitors like Microsoft Corp.’s Sidewalk and America Online’s Digital City.
Created just three years ago, CitySearch has been growing rapidly, but is still bleeding red ink. Last year, it lost $36.7 million on $6 million in revenues, although its revenues for the first six months of this year were more than all of 1997, while losses were down slightly.
Ticketmaster Online, on the other hand, is profitable (it logged $10 million in sales in July from a startup 14 months ago) and the combined company is expected to operate next year at break-even on a cash flow basis (earnings before interest, taxes, depreciation and amortization,) sources said.
The deal has been negotiated over the past few days, just as CitySearch was finalizing plans for its public offering, which was scheduled to be priced by the end of this week.
Sources said CitySearch’s value in the deal will be about what it would have got from the offering, roughly $250 million, while the combined company will be worth $600 million.
Plenty of interest
Sources said that despite the volatile market, demand for the CitySearch offering was strong among investors.
It is not clear what prompted the merger talks, but USA has been a shareholder in CitySearch since last November, when the company bought $20 million of stock in a private placement. It bought another $3 million of stock in May, and held about 12% before the public offering. USA was committed to take up about one-third of the 4 million shares being sold in the offering, CitySearch said in SEC filings.
Ticketmaster Online and CitySearch also signed a cross-promotional agreement last year in which Ticketmaster’s Web site promotes CitySearch’s city sites.
One of the attractions of the deal, sources said, was the management team that USA gets from CitySearch. Observers say CitySearch’s team, led by CEO Charles Conn, is among the best Internet companies.
Conn will become the new company’s CEO while USA Networks Interactive president Alan Citron will become chairman.
USA Network stock rose 93¢ Wednesday to $27.43.
(Adam Sandler in Los Angeles contributed to this report.)