In the space of three days last week, USA Interactive Inc. announced — and then tabled — a $4.5 billion offer to buy all remaining shares of its three publicly traded subsidiaries: Expedia Inc. TicketMaster and Hotels.com.
To Barry Diller's USA Interactive, the plan disclosed on June 3 was a way to simplify the company's structure and make it easier to capture a larger portion of the electronic-commerce market.
But though some analysts liked the idea, investors drove USA Interactive stock down 12 percent, or $3.60, to $24.90 on the day of the announcement. That implied investors thought Diller would have to sweeten his all-stock offer.
USA Interactive later regained some ground, closing at $26.03 on June 5, up 93 cents.
The combination of USA Interactive's decline and the subsidiaries' rise forced Diller to re-think the offer.
"Although we had anticipated commencing exchange offers relatively quickly, market reaction — including the effect we believe arbitrageurs have had on the exchange ratio — has precluded a quick process," USA said in a statement June 5. "Therefore, we will not commence any exchange offers in the near future."
USA also said in the release that the situation could change, but it did not expect to sweeten the offer.
In the statement, USA said each of the subsidiaries will appoint special committees of their independent directors to evaluate the proposal, and that it will work closely with those panels.
USA Interactive — created last month after USA Networks Inc. formed a joint venture with Vivendi Universal SA, contributing its cable and programming-studio units — would issue 2.7 USA shares for each Expedia share, 1.8 USA shares for each Hotel.com share and 0.8 USA shares for every TicketMaster share.
GAPS OPEN
After the stock prices changed, USA's offer ended up being worth about $20.99 for each $22 TicketMaster share, as of June 5. The gap was even bigger with Expedia and Hotels.com.
Analysts saw value for USA Interactive in the proposal. USA consolidates the subsidiary operations, but each retains its own publicly traded stock.
"In a market environment that is skeptical of complicated capital structures, we view this as a positive and timely transaction," said UBS Warburg LLC media analyst Christopher Dixon in a research report.
Dixon added that the new structure also makes it easier for USA Interactive to do deals, and should help the company achieve its goal: To capture 20 percent of the e-commerce market within the next three years. The company currently controls 8 percent of that market.
The offer came less than a week after USA announced it would purchase timeshare-services provider Interval International for $578 million in cash and stock.
In a statement last Monday, USA Interactive chairman Diller said that by participating in the exchange, shareholders of all three subsidiaries would participate in USA's "opportunity and upside."
"USA's current structure, with multiple public subsidiaries, is an unusual one," Diller said in letters to each of the three companies. "Although we could continue to operate with the current structure, we think a reconfiguration of the USA family along the lines we propose is in everyone's interest."
