May 12, 1999
Lycos, USA Call Off Merger
Amid Shareholder Opposition
An INTERACTIVE JOURNAL News Roundup
Lycos Inc. and USA Networks Inc. formally called off their complicated merger agreement Wednesday, a deal that had sent shares of Lycos sharply lower after it was unveiled in February.
Independent Again
Lycos CEO Robert Davis comments on the termination of the company's deal with USA Networks.
The announcement, which was expected, is a victory for big Lycos shareholder CMGI, which had initially supported the deal, but quickly changed its mind once the stock started to drop.
The breakup, however, leaves Lycos scrambling to find a partner at a time when Lycos's main rivals have been acquired by bigger companies. In a flurry of recent deals, Netscape Communications was acquired by America Online Inc., Excite Inc. is being acquired by At Home Corp. and Yahoo! Inc. is adding heft by buying GeoCities Inc.
Investors appear to be betting that another suitor will emerge with an offer sweeter than that proposed by USA Networks, analysts said. Paul Noglows, at Hambrecht & Quist Inc., said investors are building a deal premium into the stock.
Shares of Lycos rose $9.625, or 9.8%, to $107.875 in afternoon trading Wednesday on the Nasdaq Stock Market. BT Alex. Brown raised its rating on the stock to "strong buy" from "buy."
In a statement, CMGI Chief Executive David Wetherell said the end of the USA deal allows Lycos "to return attention to further development of its core online assets." He wasn't immediately available for further comment.
'Feel Great' About Lycos Prospects
"I don't want to comment on who we might and who we might not talk to," Lycos CEO Robert Davis said in an interview on CNBC Wednesday. "Suffice it to say there are a lot of different companies that had interest in alliances with us in a variety of different degrees. ... I really feel great about our prospects right now," he said.
Mr. Davis said he and CMGI's Mr. Wetherell clearly disagreed over the USA Networks deal. But it wasn't Mr. Wetherell's displeasure with the transaction that ultimately led to the merger's unraveling, Mr. Davis said.
"I don't think it was necessarily Wetherell that made the difference," Mr. Davis said. "I am disappointed in how it went. I believed in the value of the transaction," he said.
Internet executives say that the uncertainty surrounding the USA deal has been an unsettling distraction for Lycos in the fast-moving Internet world.
Role of Day Traders
A big factor in USA's decision to drop the bid was that its bankers determined that 65% of Lycos shares are held by "day traders," short-term investors who have bought Lycos shares on the possibility that a richer bid for Lycos will emerge. Day traders weren't expected to support the USA Networks offer. To be approved, 50% of Lycos shares would have to vote for the deal.
Lycos Shares Plunge 26% as Its Plan for Merger Sparks Shareholder Dissent (Feb. 10)
USA Networks, Stymied by Holders, Is Expected to Give Up Lycos Bid (May 10)
After sealing the original merger pact, USA Networks acquired options to purchase as much as 17.5% of Lycos shares should Lycos shareholders vote down the deal after receiving a bid from another suitor. The companies said Wednesday that the option agreement also has been terminated.
Also Wednesday, Lycos and USA-controlled Ticketmaster Online-CitySearch -- the third company involved in the canceled deal -- announced they signed a distribution and commerce agreement. CitySearch will provide local content for Lycos' national network, while Ticketmaster Online content will be displayed on Lycos sites and allow its uses to buy tickets via direct links to the Ticketmaster site.
The companies also will explore ways to cooperate on local commerce for the more than 15,000 businesses hosted by CitySearch and its partners, they said. USA Networks and Lycos will exchange cross-promotional opportunities involving the Lycos sites and USA Networks' media assets.
If Lycos, Waltham, Mass., agrees to or becomes subject to another acquisition before July 15, it will be required to pay USA Networks and Ticketmaster $35 million under certain circumstances. USA Networks and Ticketmaster also agreed to not acquire Lycos stock or make any proposal to acquire the Waltham, Mass., Web media company until July 15.
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