It's not news that Web media companies have fallen on hard times. But this month, those failing fortunes are coming into sharper focus as a growing number of companies step forward to assign price tags to the outcome of expansion at the bursting point of the Internet bubble.
Last week, for example, Excite@Home wrote off US$4.6bn in goodwill, or intangible assets, largely to account for a pair of high-priced acquisitions: Excite.com and Web greeting card site Blue Mountain Arts.
Excite@Home is not alone in using a write-off to signal difficulties in running ad-supported Web businesses. AT&T, its majority shareholder, on Monday took a related $1.6bn charge against earnings.
Also on Monday, Walt Disney made a surprising announcement that it will shut down operations for its Go.com portal and lay off about 400 employees. The company added that it will take a $790m noncash write-off of Go.com's intangible assets and an additional $25m to $50m write-off for severance and fixed assets.
Terra Lycos, created when Terra Networks and Web portal Lycos merged in October, faced a similar valuation issue as Internet stock prices went into free-fall shortly after the deal was announced in May. Spanish Internet service provider Terra had originally guaranteed a $12.5bn floor for the all-stock deal but later renegotiated the terms, taking some $6bn off the final price.
The round of write-offs begs the question of whether other companies will have to write off assets as well. The pieces seem to be there: the online advertising market is souring, and Internet investments, once fuelled by soaring stock prices, have become expensive busts.
Many companies made large bets on the Internet with cash or stock. But few are likely to feel the pain as keenly as Excite@Home, according to analysts, who said the Excite and @Home deal stands out in a sea of high-priced mergers.
For one thing, @Home issued an additional 50 percent of its total number of outstanding shares to acquire Excite, putting a relatively high percentage of its total valuation at risk. In addition, the company failed to take advantage of a then-common accounting tool, known as "pooling-of-interest", used by many to help reduce the cost of mergers.
Although new restrictions on pooling have since made it less attractive, some of the recent biggest -- and arguably overpriced -- dot-com mergers used the technique, which does not require companies to write off depreciating assets. Yahoo!'s $5.04bn purchase of Broadcast.com and its $2.87bn acquisition of GeoCities, for example, both used the pooling method.
