USA Networks Inc. sweetened its offer and finally persuaded
Ticketmaster Group Inc.'s board to accept a merger last week.
Now, investors can focus more fully on which assets Barry
Diller's USA might end up with from Tele-Communications Inc., as talks progress
toward TCI's Liberty Media Group maintaining or increasing its stake in USA.
USA and Ticketmaster said last Tuesday that USA had
increased its offer by about 11 percent, to 0.563 shares of USA stock for every
Ticketmaster share that it didn't already own. That was up from USA chairman
Diller's October offer of 0.506 USA shares.
USA also abandoned a collar that would have capped the
Ticketmaster consideration at $25.30 per share. That made the deal worth even more. Based
on Monday's USA closing price ($52.75), Ticketmaster holders would receive $29.70 in
USA stock per Ticketmaster share, or around $400 million. That's 17 percent more than
$25.30 per share ($340 million) under the earlier offer.
In the five months since Diller put in his bid for one-half
of Ticketmaster, the latter company's share price kept rising, as Wall Street
believed that Diller would have to improve the offer. Ticketmaster CEO Frederic Rosen said
publicly that he thought that the collared bid was too low.
Rosen -- a strong-willed entrepreneur who built
Ticketmaster from less than $1 million in annual revenue in 1982 to a powerhouse that
processes 70 million tickets and that took in $341 million in revenue in its last fiscal
year -- said in a prepared statement that the agreement represented "fair value"
for the company and that he would help to guide the transition to USA. TheWall
Street Journal reported that Rosen said he would resign after the deal closes, even
though his employment contract (at $70 million per year) runs through the end of the year.
Ticketmaster spokesmen did not return calls by press time.
Influential investors like Mario Gabelli also thought that
Ticketmaster was worth more than Diller's initial bid. Gabelli said last week that
the USA-Ticketmaster accord was a done deal, and that the key would be to see how high
Diller can pump up USA's stock price before the closing. He added,
"three-quarters of a loaf is better than an ongoing war."
Diller sees Ticketmaster's electronic-commerce and
Internet capabilities as a key to his growing media empire, which includes USA Networks,
Home Shopping Network and broadcast TV stations.
"Over time, Ticketmaster fits really well with the
overall mix of USA assets," PaineWebber Inc. media analyst Christopher Dixon said.
Diller keeps emphasizing electronic commerce as one of several prongs of his strategy,
which, roughly, are local broadcast television, cable programming, home shopping and
outsourcing capacity to fulfill shopping orders. Ticketmaster and HSN both process
millions of transactions per year, and both have growing online-sales outlets.
Media Group Research analyst Mark Riely said the price
seemed steep for Ticketmaster, which generated $55 million in cash flow in the last fiscal
year. But Dixon said Diller was forced to pay more than he wanted to.
On the day that the deal was announced, Ticketmaster's
share price bumped up $1.63 per share (6 percent), to close at $28, and it ticked up again
the next day to $28.19. USA's share price dropped $1.50, or 3 percent, to $51.245,
but it regained $1.06 the next day.
HSN bought about one-half of Ticketmaster last year,
starting with Microsoft Corp. co-founder Paul Allen's 47.5 percent, in a stock deal
worth about $210 million. USA subsequently bought other Ticketmaster shares to get up to
around 50 percent.
Ticketmaster's board referred Diller's offer to a
special committee, which negotiated the new terms. A definitive agreement must now be
hammered out and approved by Ticketmaster shareholders. The companies hope to close the
deal in about three months.
Meanwhile, Diller and TCI officials are still talking about
what assets, or what blend of assets and cash, it will take to increase Liberty's
stake in USA Networks to 25 percent. Liberty's 32 percent piece of HSN Inc. shrank to
15 percent of USA Networks after HSN acquired USA and other assets from Seagram Co. It
will cost $1 billion to follow through on TCI's plan to step up to 25 percent.
According to securities filings, Liberty has until June 30
to make its deal with USA. Among the possible assets under consideration to shift to USA
are TCI Music -- the Liberty-controlled unit that includes music-video network The Box,
music-over-cable service Digital Music Express and music-oriented Web sites SonicNet and
Addicted to Noise -- analysts believe. Those assets would blend well with USA's. But
TCI Music has a market capitalization of about $600 million, and analysts think that
Diller would not value it that highly.
Dixon said it was possible that Liberty might have some
news on those talks at TCI's three-day conference for analysts, lenders and investors