Internet city-guide producer CitySearch announced plans to merge with USA Networks' Ticketmaster Online unit, forgoing its scheduled initial public offering for the time being.
Analysts hailed the merger as a smart move that will give CitySearch another revenue stream - ticket sales - and allow it to compete more effectively in the developing and crowded local online content market.
"E-commerce is preceived as one of the pots of gold at the end of the Internet rainbow," said Lisa Allen, a senior analyst at Forrester Research.
CitySearch produces 13 local city guides on the Internet, seven of which are owned and operated by the company. The company generates most of its revenue at those sites from selling ads to small businesses for $750 or less a month.
The company's other six sites, as well as four sites scheduled to launch later this year, are controlled by local media companies that pay CitySearch licensing and royalty fees.
The Ticketmaster Online merger will give CitySearch a leg up on its competitors in the online city-guide market. Rivals include Zip2 (which earlier this year called off a merger with CitySearch), Microsoft's Sidewalk, and a joint venture of America Online and Tribune Co. called Digital City.
The move is "a real slap in the face" for Microsoft, according to Allen, who said the company's Sidewalk sites focus on arts and entertainment but don't yet have ticketing capabilities.
According to the terms of the agreement, the new company will be called Ticketmaster Online-CitySearch, owned 42.5 percent by CitySearch's owners and 62.5 percent by USA Networks (USAI) shareholders. (The total exceeds 100 percent because USA Networks already held a stake in CitySearch.)
Patrick Keane, an analyst at Jupiter Communications, said the merged company's increased ties to USA Networks should pay dividends. "TV is a proven driver of Web-site traffic," Keane said.
"As we have maintained for some time, we believe that most people's interests lie within the general limits of the cities in which they live," USA Networks Chairman and CEO Barry Diller said in a statement. "We hope this combination of assets, together with the cheering help of USA's local broadcast stations, will create critical mass in this growing Internet area."
Ticketmaster Online and CitySearch will maintain their respective Web sites. The combined company is to file for an IPO after the completion of the merger, which CitySearch's other investors - including Goldman Sachs, Intel Corp. and The Washington Post Co. - must approve.
Before the Ticketmaster Online deal, CitySearch was expected to sell 4 million shares at $11 to $13 each via lead underwriter NationsBanc Montgomery Securities. Dick Smith, head of Montgomery's syndicate desk, said there was "no shortage of demand" for CitySearch shares.
"From the standpoint of CitySearch's IPO, the strategic benefits of the merger are even more compellinthan the prospect of pursuing an independent path as a public company. The logic of this combination was too attractive to pass up," said CitySearch CEO Charles Conn.
USA Networks will also be investing $50 million of convertible debt in CitySearch to fund the company's expansion until the merged company's IPO.
By Darren Chervitz, a a reporter for CBS MarketWatch