Investors wary of hoofy Disney deal

Finally, Disney will get a dot-com tracking stock. But it might not be able to bottle up the Net-stock magic so easily. News of Disney buying up the rest of Infoseek and issuing a kitchen-sink Net stock of Disney properties didn't have traders whistling while they worked on Tuesday. Infoseek stock soured, dropping 10%, and Disney was up about 19 cents.

Finally, Disney will get a dot-com tracking stock. But it might not be able to bottle up the Net-stock magic so easily. News of Disney buying up the rest of Infoseek and issuing a kitchen-sink Net stock of Disney properties didn't have traders whistling while they worked on Tuesday. Infoseek stock soured, dropping 10%, and Disney was up about 19 cents.

Meanwhile, the media had a bit more to sink their teeth into as a few more details emerged. Disney will combine its Web properties, Infoseek properties and Disney's catalog and order-filling operation into Go.com, pending shareholder approval from both companies. Chairman Michael Eisner played Bill Gates with plenty of futuristic gab about a broadband world for Disney content.

Disney's $US5.5-billion-a-year capital-investment habit already has stockholders anxious, according to a Bloomberg report posted on USA Today. Given the company's fat expenditures on its parks and films, the new Net strategy has investors seeing more red in future earnings reports. Most media outlets pointed out the kingdom's online cracks.

The Washington Post's Leslie Walker said analysts had been lukewarm toward the Go Network since its January launch, with an uptick of traffic but flat ad revenues. She also mentioned the brain drain at Buena Vista Internet and Infoseek recently, and technical glitches with Go.com's e-mail service. Eisner's response? He told Walker that hiccups were inevitable in an e-venture that's only six months old. (Guess no one told him about Internet time.)

CBS MarketWatch clumsily tried to bundle the story with an announcement from NBC about adding GE chairman Jack Welch to the board of NBCi. MarketWatch's Bambi Francisco and Emily Church did a better job focusing on Disney in a separate report. The big knock? By adding in Disney's catalog business, the company is dragging down the new Net stock. "The perception may be that Disney's catalog business may be diluting the value, since it's not a pure Internet entity," analyst Catherine Skelly told CBS.

The San Jose Mercury News' Deborah Kong led her report with plenty of Disney bluster about delivering content in faster, richer and more creative ways. Buried near the bottom was the intriguing line: "It's unknown where the new company will be headquartered or who will head its management team, officials said." Disney officially pooh-poohed such concerns. In a report by AP's Seth Sutel, Eisner dismissed the issue and sniffed, "We are not out-of-control Internet people." But Disney CFO Thomas Skaggs broke the company line. In a report by the Wall Street Journal's Bruce Orwall, Skaggs conceded that dueling management teams with "not completely aligned agendas" had indeed slowed the initial venture's advancement.

The new tracking stock for Go.com is viewed as a way to bridge that gap and land top Net talent, according to Disney's backyard newspaper, the Los Angeles Times. In an interview with the Times' Greg Miller, Eisner said that Go's new structure - and the potential stock riches it can offer - will make it easier to land Net-heads. Even that may not be enough. Critics wondered to the New York Times' Geraldine Fabrikant and Saul Hansell whether a mature media entity could produce a fast-moving Netco. "Disney has kind of an image of monitored, safe sex," John Tinker, who follows Disney for Nationsbanc Montgomery Securities, told the Times. "On the Internet everyone wants freedom." And wearing mouse ears just doesn't cut it.

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