Add Walt Disney to the growing list of media companies weighing whether to convert some Internet holdings into a separate publicly traded vehicle.
The entertainment company is quietly considering ways in which it could package its Disney Online assets together with the company's 43 percent stake in Infoseek for a public offering, according to people familiar with the situation. Disney Online operates the popular Disney.com Web site (disney.go.com), which includes the company's subscription service for children. Too much hassle? Perhaps looking to make such a transaction simpler, Disney also has recently begun negotiations to take majority control of Infoseek sooner than originally planned, according to the people familiar with the situation. Disney's 1998 pact to take a stake in Infoseek allows Disney to eventually take majority control, but not for at least three years.
Infoseek is a publicly traded company already and could itself become the vehicle for a separate Disney Internet stock, if Disney can take control of the company sooner rather than later.
No decision appears imminent, and the company could yet decide to do nothing. Issuing a separate Internet stock could create more problems than it solves. It would likely pose complex legal and logistical problems for Disney in dealing with the new entity.
Disney declined to comment. Infoseek Chief Executive Officer Harry Motro wouldn't comment except to say that Infoseek is "always talking to Disney about how to build a great product for the consumer. We are very excited about the potential for working with them in developing an even deeper relationship." Media companies such as Time Warner and CBS have recently disclosed that they are also considering turning Web holdings into separate companies. A frequently discussed format involves each company owning 80 percent of the new entity, with 20 percent being sold to the public.
Disney has been seen as resistant to the idea, partly because the company likes to keep tight control on all of its operations. Lately, however, company officials and Wall Street alike have been frustrated with the sluggish performance of Disney's stock. It has been especially vexing that, in an Internet-crazed market, the Web operations of companies such as Disney don't seem to get the same high valuations because they are hidden inside bigger companies.
The call for a Web-focused Disney offering intensified when J.P. Morgan Securities analyst Richard J. MacDonald raised the prospect in a recent report. MacDonald argued that traditional valuation methods are short-changing Disney's true value. He called for "a tracking stock or other vehicle through which public investors can accord value to the company's non-earnings-producing assets."
MacDonald's report, in fact, suggests that Disney might want to contribute some non-Internet assets to the new entity. Those might include the company's stake in some cable channels or its new "regional entertainment" unit, which is beginning to build Disney arcades and theme restaurants around the country. Like the Internet assets, some of those operations are start-ups that aren't yet contributing to Disney's bottom line.
