NEW YORK — NBC will merge its Internet assets with Xoom.com and Snap.com to form a $4 billion publicly traded company, NBC Internet, the broadcaster said Monday.
Using Snap as its umbrella brand, the new company will have more than $800 million worth of NBC ad time to drive users to NBCi’s myriad Internet holdings.
In recent months, most of the major entertainment companies have considered spinning off their Internet investments into separate companies, but NBC is the first to do it.
Having a separate Internet stock makes acquisition of other Internet companies a lot easier for the major media congloms. Right now, Internet companies trade at such high valuations compared with traditional media that media companies cannot use their stock to buy Internet firms.
USA Networks chairman Barry Diller ran into this problem earlier this year when he proposed acquiring Internet portal Lycos, a deal now faltering over arguments about the price Diller was offering (see story, page 4).
As part of Monday’s deal, NBC will kick in properties such as NBC.com, NBC’s Interactive Neighborhood, Videoseeker.com and a 10% ownership stake in the forthcoming CNBC.com into NBCi.
NBC has agreed to give $380 million worth of ad time on its broadcast network to promote Snap over the next four years. Over the following six years, NBC will kick in an additional $500 million in advertising.
In exchange, NBC will own a 49.9% stake in NBCi, and will name directors to six of the 13 board seats.
Robert Wright, president and CEO of NBC, will become chairman of the NBCi board. Chris Kitze, chairman of Xoom.com, will become president and CEO of NBCi.
Assuming the conversion of a debt instrument, NBC would own a 53% stake, CNET would own approximate 13% and Xoom.com shareholders and its option holders would own a 34% stake.
Quicker than IPO
“This venture was clearly established to enhance asset value,” said Tom Rogers, president, NBC Cable and exec VP, NBC. “This was a quicker route to create a public currency than using an IPO.”
The stock of Xoom.com, a community and e-commerce site, jumped 9% Monday to close at $81.88, up $6.75.
CNET, in which NBC already owns 5%, leaped nearly 20% Monday, closing at $136.19, up $22.44 for the day.
When the deal closes, NBCi’s Snap will become the seventh-most-popular Internet site, according to Media Metrix, just behind Disney’s Excite.
NBC was also already an investor in portal Snap. By promoting Snap on NBC’s broadcast web, the hardly used Snap vaulted to the 11th-most-popular site in only six months.
“NBCi’s assets can piggyback on NBC’s cross-promotional value,” said media consultant Gary Arlen. “Snap has done very well from the NBC promotion.”
While most observers praised NBC’s deal, analyst David Simons said he’d take a wait-and-see attitude.
“It remains to be seen how all these pieces will work together in the marketplace,” said Simons, managing director of Digital Investments.