Yahoo! Swallows GeoCities in $3.5 Billion Stock Deal

Yahoo! Inc. (Nasdaq: YHOO) today announced it has signed an agreement to acquire GeoCities (Nasdaq: GCTY), the Web-based community that offers free personal Web pages. The acquisition combines two of the largest and most popular services on the Internet and, for the first time in over five years, establishes an online entity with the financial strength and popularity to pose a credible threat to America Online’s industry dominance. The purchase will take the form of a $3.5 billion (US$) stock deal.

With the addition of GeoCities to the Yahoo! network, the companies expect their combined unduplicated home/work reach to exceed 58% of Web surfers, positioning it as the second largest network of properties on the Web, trailing only after AOL. This merger of Internet giants will result in a vast e-commerce powerhouse, altering the balance of power on the Internet and forcing AOL to seek more major alliances in 1999 to remain on top.

With more than 35 million unique registrations for its member services worldwide, Yahoo! has built one of the Web’s largest registered communities. With this purchase, Yahoo! now matches all of the features offered by AOL, with 2 notable exceptions of ISP connectivity and a user friendly interface, like AOL 4.0. However, Yahoo!’s services are free of charge, while AOL members pay a monthly membership fee.

Under the terms of the agreement, Yahoo! will issue 0.3384 shares of Yahoo! common stock for each share of GeoCities common stock. In addition, all outstanding options of GeoCities will be converted into Yahoo! options. The acquisition is expected to be completed in the second quarter of 1999.

According to Tim Koogle, Yahoo’s chairman and CEO, “Through this acquisition, we are accelerating our global leadership position by combining two of the Web’s strongest brands and most heavily used services into one powerful offering.”

What Each Side Gets

Yahoo! will be able to distribute its content published through personal homepages in an array of services, such as Yahoo! Clubs, Yahoo! Classifieds, Yahoo! Shopping, Yahoo! Auctions, and other areas of the network, to GeoCities. GeoCities has been successful in building its community, but sorely lacking in content offerings.

On the other hand, Yahoo! gets total access to GeoCities’ 32 million Web pages generated by its 3.5 million members.

On a basic level, the companies tend to serve a similar consumer audience, and a tighter integration of their services will produce more cross-traffic between their sites. This will establish the companies as the second-largest destination for consumer-oriented product advertising, and will allow the companies to form a united front to resist the dropping prices of online ads.

However, the greatest benefit will be derived from direct revenue-generating offerings to the combined pool of Yahoo! and GeoCities membership. For example, both companies are actively engaged in expanding and promoting their e-commerce properties, which are fast becoming major profit centers.

The Yahoo! Stores site allows small businesses to quickly set up entry-level online shops, and has been extremely successful in its operations. Even large businesses are now gravitating towards Yahoo! Stores as a portal into their main e-commerce sites. Yahoo! has also debuted its Auction service and Yahoo! Shopping, which encompasses Yahoo! Stores and other e-commerce outlets.

GeoCities has recently announced that it will begin setting up its free home pages with the ability to become e-commerce “Affiliates,” and will, no doubt provide major pathways leading members into the Yahoo! Shopping area.