Media companies to cash in on Internet shares boom by creating 'tracker' stocks

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The Independent Online

The soaring value of Internet businesses is leading several major UK media companies, including Pearson, Reuters, EMI Group and United News & Media, to bring forward plans to hive off their online assets into so-called tracker stocks.

The soaring value of Internet businesses is leading several major UK media companies, including Pearson, Reuters, EMI Group and United News & Media, to bring forward plans to hive off their online assets into so-called tracker stocks.

Each company acknowledges that investors have been slow to appreciate the value of their expansion on to the web. Recent sharp gains in several media and telecoms stocks, including BSkyB, British Telecom, Flextech and Telewest, in the wake of unveiling online deals, has underlined the value to be unlocked. To date no UK company has issued a tracker stock, but that is almost certain to change in the first quarter of next year.

Underperformance of some traditional media stocks, notably United News, EMI and Reuters despite recent gains, has also pushed the issuance of tracker stocks higher on each company's near-term agenda.

A tracker stock usually sees a company insert particular assets into a new issue, of which around 25 per cent of the shares are floated in an initial public offering. This differs from a demerger, or spin-off, where shares in a new entity are distributed to the parent company's shareholders of record on a pro rata basis.

The most eagerly anticipated tracker issue will probably be the one being considered by Reuters, the financial information and transaction group. Reuters has more than 30 investments in Internet companies, including Yahoo!, the portal operator, with a combined value thought to exceed £250m.

Although Reuters has, until now, marketed its new media services to portals such as Yahoo!, it is monitoring new web-based businesses such as Citywire and TheStreet.com, which service the retail finance market. Issuing a tracker stock would allow Reuters to raise cash to develop its own branded web retail business as well as crystallise the equity value of its Internet operations.

At Pearson, the publisher of the Financial Times, a decision to set up an Internet tracker stock could be made as early as January. Marjorie Scardino, the chief executive, sees a tracker stock as a means to incentivise staff, provide equity currency for acquisitions, and crystallise the value of its online operations including FT.com, a new personal finance web operation.

United News is planning a tracker stock, which would include CMPNet, the online assets of the US magazine group it bought last year, as well as Line One, the Internet service provider it co-owns with BT. Broker HSBC values CMPNet at £310m.

EMI, while a comparative laggard to the Net, has recovered ground in the past six months with a spate of web-based music ventures. Eric Nicoli, chief executive, sees a tracker stock as a priority.

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