Who's Xoomin' Who?

Details of the NBC-Xoom.com deal are murky. Meanwhile, the peacock is excluding its best Net assets.
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How do you buy an overvalued Internet company?

With overvalued Internet assets, of course.

That looks to be the lesson from NBC's proposed takeover of

Xoom.com

(XMCM)

, yet another old media/new media deal that's as complicated as it is hard to value.

NBC will combine some of its Internet assets, including

Snap.com

, the Internet portal NBC co-owns with

CNet

(CNET) - Get Report

, with Xoom, to create a new, publicly traded company called

NBC Internet

, or NBCi.

NBC, a unit of

General Electric

(GE) - Get Report

, and Xoom promise that the new company will combine Xoom's e-commerce and Web services with Snap.com, a more traditional portal that offers information on everything from real estate to UFOs. In addition, NBC will contribute its

NBC.com

and

Videoseeker.com

sites to NBCi and invest $370 million in a convertible bond from the new company. (Not coincidentally, NBCi has

agreed to spend $380 million to advertise on NBC over the next four years.)

In return for its cash and contributions, NBC will get 49.9% of the combined company, with Xoom's current shareholders receiving just over one-third and CNet taking the rest. NBC also has the option to increase its stake to 53% "at a future date." That much is clear. But a lot about the deal remains murky.

For example, it's not clear how many shares outstanding the new company will have, or what the exchange ratio between Xoom shares and NBCi shares will be. Nor did NBC and Xoom disclose their estimates of the value of the assets they're contributing.

In fact, the press release announcing the deal lacked even the most basic financial information about the new company. Wondering about NBCi's pro-forma revenues for 1998 or estimates for 1999?

Magic Eight Ball

says ask again later. Ditto for profits.

In an interview, Xoom Chairman Chris Kitze, who will be NBCi's president and CEO, says the combined company would have had revenues of $21 million in 1998. He was comfortable with analysts' estimates that revenues would reach $70 million in 1999. But Kitze couldn't provide any estimate for the company's losses, which will undoubtedly be sizable. "All I have is top line," he says, adding that the new company hopes to become profitable by late 2001.

Finally, the companies have glossed over the fact that NBC has largely excluded its two most promising Internet assets,

MSNBC.com

and

CNBC.com

, from the new company. NBC will contribute just 10% of CNBC.com, which isn't even running yet but is expected to be extremely popular, to the new company. MSNBC.com, a joint venture of

Microsoft

(MSFT) - Get Report

and NBC, will remain entirely separate.

That split raises some intriguing questions. How closely will the sites work together? And will NBC be tempted to promote MSNBC.com and CNBC.com at the expense of Snap.com?

Kitze says he's not concerned, arguing that NBC has every incentive to make its subsidiary successful. "We have the exclusive use of the peacock

NBC's symbol and the NBC name for the portal and e-commerce," he says. NBC already has the power to push viewers from its shows to the Internet. Adding Xoom will enable Snap.com to become a "community, where you have viewers who are converted to members," Kitze says.

So far, investors seem to be buying that logic. Xoom, which went public in December at 14, closed Monday at 81 7/8, up 6 3/4, or 9%. At that price, the company, which lost $3.3 million on revenue of $4.4 million in the first quarter, is valued at almost $1.4 billion. Since Xoom will represent roughly one-third of NBCi, investors are reckoning the new company will be worth more than $4 billion. Just think what it might be worth if it included NBC's

good

Internet assets.