FYI the Lycos deal...
If USA Deal Falls Through,
What Does Lycos Do Then?
By NICK WINGFIELD
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- If its proposed deal to form a new company with the online and home-shopping assets of USA Networks falls through, what are Lycos's options?
That question seems less hypothetical with each passing day. Since the merger was announced in February, Lycos shareholders have shaved about 30% off the company's market value, with many publicly fretting that they're getting too small a premium for a hot Web player.
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In trading Tuesday on the Nasdaq Stock Market, shares of Lycos added 2 3/16 to close at 90 3/4. Meanwhile, the Nasdaq Composite Index fell 36.15 to 2259.03 and Morgan Stanley's high-tech 35 index dropped 25.60 to 906.95.
At an investor conference in Utah on Monday, David Wetherell, the chairman and chief executive officer of CMGI, the investment firm that is Lycos's biggest shareholder, remained cagey about whether he will support the deal when its goes to shareholder vote in May. Meanwhile, USA Networks Chairman and CEO Barry Diller made it clear Tuesday at a conference in New York that CMGI and other shareholders that USA wouldn't consider renegotiating the deal on more favorable terms for Lycos.
The merger is a tricky one to value since it involves the shuffling of so many USA assets -- a factor that's probably added to shareholders' anxiety. Under the proposal, Lycos shareholders will, in effect, control 30% of a new company to be called USA/Lycos Interactive Networks, which will also include TicketMaster Online-CitySearch, the Home Shopping Network, TicketMaster, and Internet Shopping Network/First Auction. The companies have said that the resulting new media powerhouse will benefit hugely from the promotional muscle provided by USA Networks' sprawling television operations.
Considering the shareholder discontent that's been voiced so far, Alan Braverman, the former Deutsche Bank Securities Inc. analyst who Tuesday joined NationsBanc Montgomery Securities LLC, said he gives the deal a "70% probability" of going through. "If the Street doesn't like the deal, Diller is going to walk," Mr. Braverman said.
If Mr. Diller does walk, though, that leaves Lycos without a dance partner at a party where old media-new media synergy is the tune. Lycos was merely the third Web "portal" site after CNET's Snap! and Infoseek to find itself an old-media firm capable of delivering extensive on-air plugs that would drive traffic to its sites.
Most analysts expect Lycos would try to find a similar partner if shareholders should scotch the USA Networks deal. "If the deal falls through, they will be forced to make a deal with a larger media company down the road," said Chris Charron, an analyst at market-research firm Forrester Research.
But would other media companies be willing to pay more than USA?
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Mr. Charron doubts it. Media tycoons like News Corp. chairman Rupert Murdoch have publicly winced over the skyrocketing market values of Internet companies, severely complicating deals between the two camps. In general, Internet companies have tended to receive the highest premium when the acquiring is being done by another Internet company, with bloated stock to use as currency. But there's the rub: Although old-media firms may be the best-equipped to drive visitors to Internet sites with their broadcast and cable properties, they are least able to afford whopping Internet valuations. "They've priced out traditional media players," Mr. Charron said.
In any case, Lycos could return to the bargaining table with any of the various firms it's held talks with in the recent past, a list that includes Time Warner, Bertelsmann, News Corp., CBS, Walt Disney's ABC unit and Viacom and General Electric's NBC unit.
Lycos, of course, hopes negotiations with other companies won't be necessary, since it badly wants the USA Networks deal to happen.
"We think it's a great deal and we think it will go forward," said Brian Payea, a Lycos spokesman.
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