THE RUMORS ARE FLYING FOR LYCOS........CMGI and Lycos: Back in the
Saddle?
By Jim Evans and James Ledbetter
There they go again: Internet investment
firm CMGI is in talks to increase its stake in
portal company Lycos (LCOS) , according to
a source familiar with the negotiations.
CMGI currently holds about 18 percent of
Lycos, and has at various times sought to
increase that to a majority stake. The
present talks, according to the source, could
yield such a result, pending the approval of
the Lycos board of directors. Both
companies declined to comment on whether
any such talks were taking place.
The current talks resume the on-again,
off-again flirtation between the two
Massachusetts-based firms. Although neither
company's CEO confirmed any negotiations,
both executives – Lycos' Bob Davis and
CMGI's David Wetherell – said in separate
interviews Monday that their relationship is
sound.
"David and I get along great," Davis said.
"After the USA deal broke apart, we had a
peace pipe and broke bread."
In February, Lycos tried to do a complex
deal with Barry Diller's USA Networks (USAI)
. During those negotiations, Wetherell, who
initially voted for the deal as a Lycos
director, left the board after he grew
disenchanted with the merger's terms.
Ultimately, the deal broke apart after
substantial shareholder protest.
"It wasn't personal, it was business,"
Wetherell said in an interview Monday. "Bob
[Davis] was just selling it too hard and he's
a great salesman. I thought at the time it
could affect his credibility."
Back in early June, rumors about a possible
CMGI bid for Lycos began circulating, though
officials at both firms declined to confirm
that talks had taken place. On June 24, The
Wall Street Journal disclosed the
negotiations, but said that discussions had
stalled as tensions grew between the two
CEOs.
What could complicate any deal between
the companies is that the preferred deal
structure, a "pooling of interests," wouldn't
be possible for Lycos until Oct. 9, per
securities regulations covering tax
write-offs. Indeed, technically, the
companies cannot even begin talking until
Oct. 9, according to one analyst, if the
ultimate goal is for CMGI to take a majority
interest in Lycos and write it off using a
pooling structure. However, CMGI might be
able to increase its stake to less than 50
percent and have an option to buy more of
Lycos later.
As the last major portal that is still
essentially independent, Lycos continues to
be a tempting takeover target. According to
MediaMetrix, the Lycos network of sites had
about 29.4 million unique visitors in August,
making it the fourth-largest Web destination.
In the three months ended April 30, 1999, Lycos reported a loss of
$13.3 million on revenues of about $35 million.
CMGI was responsible for much of the early funding of Lycos.
Recently, CMGI has been on a buying spree for properties that –
especially if combined with Lycos – would make a formidable Web
company across a variety of platforms. Just yesterday, CMGI
announced the Acquisition of AdForce, the Cupertino, Calif.-based
Internet advertising firm, in a deal valued at about $500 million. Most
industry observers feel that the AdForce acquisition is designed to
help CMGI form a competitor to DoubleClick (DCLK) , the New
York-based leader in the Net advertising category.
Wetherell says that CMGI's goal in the next 12 months is to capture
the top spot in MediaMetrix's audience-reach numbers. The company
took its first step toward that goal in late June, when it acquired a
majority stake in the search engine AltaVista in a deal valued at
approximately $2.3 billion. AltaVista's sites were ranked 10th on
MediaMetrix's list of Web properties in July.
Andrea Williams, managing director of equity research at online
investment bank E-Offering, said that if a CMGI-Lycos deal goes
through, "it would accelerate the development of CMGI's properties."
For its part, Lycos needs something to jump-start its stock. "Lycos
has to get investors excited in its stock again," Williams said. "It's got
to have a break-out deal, not more of the same.
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