Yahoo! deal: stealing L.A.'s tech thunder.

GeoCifies Chief Executive Tom Evans was one of the headliners last month at an industry networking event, where he described Los Angeles as "a good launching pad" for technology companies.

No one paid particular attention to that comment until last Thursday, when the Marina dei Rey-based company fired off a mega-billion-dollar rocket - specifically its own plans to be acquired by Yahoo! Inc.

L.A. has grown accustomed to seeing many of its high-flying tech firms get gobbled up by out-of-towners. But this one was a biggie: GeoCities, which had 1998 revenues of a mere $18.4 million, had been dubbed a crucial linchpin for L.A.'s fledgling high-tech community. It could have served as a regional anchor - much like Intel, Hewlett-Packard and Apple Computer have served as anchors for Silicon Valley.

There's a chance that may still happen. The deal won't be completed until May and neither Yahoo nor GeoCities offered details about layoffs or relocations. For his part, GeoCities spokesman David Zanca gamely suggested that the core of the company will remain local though during a meeting with the 400-person GeoCities staff last week in Marina del Rey, Yahoo executives said no decisions had been made,

If history is any guide, the outlook for L.A. is not good. For all the early assurances that the purchaser offers, it's typically the acquired firm that moves. That would mean Silicon Valley - yet again.

The $3.56 billion deal caught some off guard not so much because it happened - recent Internet deal-making has included America Online agreeing to buy Netscape Corp. for $4.2 billion and At Home Inc. announcing a deal to purchase Excite Inc. for $6.7 billion - but the speed with which it came together. After all, GeoCities only went public in August and had just cleared the mandated six-month holding period before it could pool its stock.

But, of course, that was the point. With its own stock trading in the stratospheric $230 to $440 range since the beginning of the year, Yahoo wanted a deal that involved not cash but an exchange of stock. And that's what they got. Each share of GeoCities will be swapped for 0.34 percent of a share of Yahoo, which at last week's prices valued GeoCities at $113.66 per share, a premium of more titan 50 percent.

In addition, all outstanding GeoCities options will be converted to Yahoo options, which brings the value of the merger to $4.6 billion. That is roughly equivalent to the GNP of Iceland, or twice what California Federal spent to buy Glendale Federal Bank last year all for a company that has yet to post any earnings. Nonetheless, analysts say it was a good deal for both sides.

"The synergies are obvious," said Barry Parr, director of Internet strategies at Framingham, Mass.-based research firm International Data Corp, "GeoCities is the one missing piece from Yahoo's offerings."

Yahoo currently offers its users an extensive array of Web-related services, including an Internet search engine, an online directory, free e-mail accounts and online shopping. The one major service it has lacked is the means to have users create personal home pages, which is precisely what GeoCities brought to the table.

"This deal moves them closer to (America Online) and further away from the rest of the pack." said Parr. The merged company will now hold the title of the world's biggest Internet attraction in terms of visitors.

The two companies' courtship began six months ago (actual deal-making took only a week to complete), Yahoo bought a minority stake in GeoCities this summer, and since then it has had an observer on the LA. company's board. The two also have a broad cross-promotional relationship, and both have Japan's Softbank Corp. (the parent of Ziff-Davis Inc.) as a substantial investor.

Jon Goodman, chief executive of USC's new-media incubator EC2, emphasized the positive ramifications stemming from the scores of stock-holding GeoCities employees who will suddenly become multimillionaires. Those newly rich techies who choose to leave the company now have the resources to finance their own start-ups. That would benchmark the next stage in the L.A. tech industry's evolving maturity. "This (type of) progression was and is the backbone of Silicon Valley," she said,

But besides a lot of suddenly rich GeoCities software developers, what does this deal do for L.A.?

"Let's be honest here: I think Los Angeles has as much claim to the online business as the Bay Area has to the movie business," Parr said. "Whether GeoCities leaves L.A. could go either way, but the center of gravity in this business is obviously to the north."

Not surprisingly, representatives from L.A.'s tech industry express a glass-is-half-full viewpoint.

"This deal acknowledges the region's wealth of talent and creativity in this industry," said Cliff Numark of the Los Angeles Technology Alliance. "Regardless of whether it picks up its roots or not, GeoCities and its success will resonate throughout the local industry."

Added Rachel McCallister, a member of Mayor Richard Riordan's New Media Roundtable and president of new-media marketing company MPRM: "This deal suggests that the Silicon Valley fold has finally broken out of its regional boundaries and sees the opportunities down here. There was a time when they wouldn't have touched anything coming out of Los Angeles."

Yahoo's own shopping spree is far from over. Its CEO, Tim Koogle, announced last week that his company would continue to look for more acquisition opportunities. No word yet on whether he was making hotel reservations in L.A.