Investors embraced the news Thursday that Web portal giant Yahoo! was purchasing ‘Netcaster Broadcast.com for $5.7 billion in stock, as shares in both companies shot up over $11 in trading.
Shares of Santa Clara, Calif.-based Yahoo! jumped $11.38 to $179.75 while Broadcast.com climbed $11.81 to $130, a gain of 10%.
Dallas-based Broadcast.com was already one of the Internet’s hottest stocks since it went public last summer. Deal marks another huge boost for the stock, after trading in the mid-$80s two weeks ago, when rumors of the deal first surfaced.
“We’re really stoked about this,” said Yahoo! chairman Tim Koogle during an early-morning conference call with Wall Street analysts Thursday that also aired on Broadcast.com’s Web site. Koogle added that it was “a pretty cool deal,” although he joked it was “probably one of the worst kept secrets in the industry.”
Under terms of the deal, Yahoo! will offer $130 a share for the 44 million outstanding shares of Broadcast.com, and includes $4.8 billion in Broadcast.com common stock and $900 million worth of Broadcast.com stock options. About 7.1 million Broadcast.com options will be converted into some 5.5 million Yahoo! options.
Wielding the power of its high-flying Internet stock valuation, Yahoo! will exchange 28.33 million of its shares for 36.7 million shares of Broadcast.com.
Broadcast.com will continue to operate independently as a division of Yahoo!, retaining its name.
Officials of both companies said the deal was structured to allow for possible wide fluctuations in the share prices of the two companies before the deal closes. The deal contains substantial penalties if either company breaks up the deal.
Yahoo! expects the merger to be completed in the third quarter of this year. The company expects to record an unspecified one-time charge in the third quarter for expenses related to the deal.
The acquisition is expected to beef up Yahoo!’s mostly text-based search service with audio and video programming, even films, on Broadcast.com’s Web site, making it one of the Internet’s largest broadcasters of streaming content on the Internet.
The Broadcast.com deal comes on top of Yahoo!’s planned $4 billion purchase of GeoCities Inc., a Web site community of more than 3.5 million personal home pages.
More acquisitions are expected. “We’ve done two substantial deals this quarter,” Koogle told analysts in the call. “You could expect us to do a small number of smaller deals this year.”
Koogle said the deal will allow Yahoo! to maintain its long-term target of 30% to 36% growth in operating-profit margins. The company posted a $25.6 million profit last year.