Charter issues record junk bonds
Marking one of the largest Internet deals to date, billionaire media entrepreneur Paul Allen said Monday that he plans to invest $750 million for a controlling stake in Seattle-based Internet startup Go2Net, which operates eight popular financial, search and gaming Web sites.
Separately, Allen’s Charter Communications Holdings issued $3 billion in junk bonds, the second-largest junk bond issue of the 1990s.
The company, which Allen bought in July for $4.5 billion, is building its financial muscle to merge new media, entertainment and technology.
The Charter deal is smaller only than RJR Nabisco’s $3.75 billion and $4.1 billion offerings in 1989 and Niagara Mohawk Power Corp.’s $3.45 billion debt offering in June 1998.
Own 54% stake
Upon completion of the Go2Net deal — one of the most significant cash offers to date in the Internet sector, where acquisitions are generally done on an all-stock basis — Allen’s investment arm, Vulcan Ventures, will own more than 54% of Go2Net, with 5 million shares of outstanding common stock at $90 per share in cash.
The firm made its first move Monday, purchasing $165 million of convertible preferred stock, with the remainder of the preferred stock to be purchased upon shareholder approval.
As part of the deal, Microsoft co-founder Allen, who’s worth more than $22 billion, agreed to buy $300 million in Go2Net convertible preferred stock.
Investors embraced the news as shares of Go2Net surged up $26.38 to close at a 52-week high of $113.38, a gain of 30%.
Go2Net operates financial research and stock chat Web sites Silicon Investor and StockSite, along with Internet search service MetaCrawler and PlaySite, a multiplayer gaming site.
Internet analysts said Allen chose Go2Net because he could purchase a controlling stake in the company. Other Web portals are already spoken for or are considerably more expensive — AtHome, for example, recently purchased Excite for $6.7 billion.
Cash to compete
With Allen’s backing, the company would have credibility and cash needed for marketing and possible acquisitions of its own to compete with Web portal powerhouses Yahoo, Lycos, Excite and Infoseek.
Go2Net’s current management will continue to operate independently, with Russell C. Horowitz remaining as CEO.
While the agreement will bring growth and development to Go2Net, it also indicates that the company will work with Allen’s affiliated cable operation, the seventh-largest in the U.S., including Charter Communications and Marcus Cable, to provide those companies’ subscribers with access to Go2Net’s portal services.
“Comprehensive portal services such as Go2Net delivered directly to set-top boxes will be a critical component in the future of cable,” Allen said in a statement. “I look forward to working with Go2Net to develop these services for the customers of our cable systems.”
Allen, who has investments in more than 50 new-media companies, is also a significant shareholder in Denver-based High Speed Access Corp. — a leading provider of high-speed Internet cable services — and has an ownership stake in DreamWorks.