Shares of Broadcast.com (BCST) jumped 8 13/16, or 7.5 percent, to 127 while Yahoo climbed 5 1/4 to 173 5/8.
Under the terms of the agreement, Yahoo (YHOO) will issue 0.7722 of a share for each share of Broadcast.com, the company said. The company will exchange 28.33 million shares for 36.7 million Broadcast.com shares and plans to convert about 7.1 million Broadcast.com options into 5.5. million Yahoo options. The shares outstanding are valued at about $4.8 billion and the options are valued at about $900 million.
The size of the deal is second only to America Online's (AOL) $9.4 billion takeover of Netscape (NSCP) and surpasses AtHome's (ATHM) acquisition of Excite (XCIT), which is currently valued at $5.5 billion, according to CommScan EquiDesk. The purchase will vault Yahoo ahead of AOL as the Internet's largest network, with 63 percent of all Web traffic, the company said.
"It really positions Yahoo to play a defining role as we see the rise of audio and video content on the Web," said Paul Noglows, an Internet analyst with Hambrecht & Quist in San Francisco. "From Broadcast.com's perspective, it will make their services available to a much broader range of users, considering Yahoo attracts 50 million unique users to its site a month."
The news led other Internet stocks higher. America Online (AOL) rose 2 1/4 to 149 1/4. Amazon.com (AMZN) climbed 3 13/16 to 176 and EBay (EBAY) was up 5/8 to 137 15/16.
The Goldman Sachs Internet Index rose 1.6 percent, and the Amex Internet Index gained 1.5 percent.
The merger, described by Yahoo CEO Tim Koogle as "one of the worst-kept secrets in the industry," will add to earnings beginning in the fiscal 2000 third quarter, the company said in a conference call. The company said it sees "some dilution" to earnings initially.
Yahoo plans to account for the merger as a pooling of interests and expects the transaction to close in the third quarter. Yahoo also said it anticipates taking a third-quarter charge related to the acquisition.
Koogle said broadcast.com is "the leading destination on the Web for audio and video broadcasts'' and will be a "powerful advertising and distribution platform for both companies' content.''
The $5.7 billion value of the deal reflects a 52 percent premium over the value of broadcast.com shares just 10 days ago, when word first leaked out about merger talks between the two companies.
Analysts said the benefit from the merger of the content of the two companies outweighs the short-term effect on Yahoo's balance sheet of having to pay such a high price.
"If we're numbering these companies five to 10 years from now, as long as it's accretive in two to three years, I'll be happy," said Bruce Smith, an Internet anlyst at Jefferies & Co. "It's not important whether there's any immediate negative impact on earnings."
This would be Yahoo's second major acquisition during the quarter. Its $3.8 billion buy of GeoCities, announced Jan. 28, is expected to close in April. Koogle said Yahoo might make other, smaller acquisitions later this year.
Broadcast.com has established itself as the dominant portal for multimedia audio and video content over the Internet. As a branded product offering under the Yahoo umbrella, Broadcast.com would significantly enhance Yahoo's service offerings. Analysts had been concerned that Yahoo would stretch itself thinly as it tried to create such services internally.
Last week, Koogle said that buying growth, buying market share and buying brand are key for the portal, even if that requires some dilution of the company's rich stock valuation.
Written By Bambi Francisco and Stephanie O'Brien, CBS MarketWatch