FYI
Internet Firm Lycos Talking to Others after USA Networks Offer
Mar. 11 (The Boston Globe/KRTBN)--Lycos Inc.'s largest shareholder said
it has begun talks with companies that could potentially outbid USA
Networks Inc. for control of the Watham Internet search engine firm.
An alternative merger deal for Lycos could be announced "within
several days," said Bill White, marketing manager of CMGI Inc. of
Andover, the venture capital firm that owns about 20 percent of Lycos.
Last month, Lycos announced plans to merge with major operations of
USA Networks, a New York television and electronic commerce company.
However, after Lycos shares plunged because of investor dissatisfaction
with the terms of the deal, CMGI openly turned against the deal earlier
this week and said it would pursue other suitors for Lycos.
Yesterday, CMGI's maneuvering helped boost Lycos shares 14 percent as
investors hoped the company would either renegotiate the terms with USA
Networks or attract another bidder.
Alternatively, CMGI might make an offer itself for the roughly 80
percent of Lycos it doesn't already own, said White.
Morgan Stanley Dean Witter & Co., which was hired by CMGI recently to
pursue options for Lycos, is now looking for other merger partners for
Lycos and could have another deal in place within days, said White.
CMGI declined to name the companies with whom it is holding talks, but
White said they include firms with which Lycos previously met to
discuss mergers.
According to industry watchers, that list includes Time Warner Inc.,
CBS Corp., General Electric Co.'s NBC broadcast unit, and Bertelsmann,
a German media firm.
Lycos shares rose 13 3/4 to close at 110.
Before the deal was announced Feb. 9, Lycos shares reached 137, but
fell to as low as 83 7/8 on Monday as traders expressed concern the
combination values Lycos far more cheaply than other Internet companies
involved in recent mergers.
As a Lycos board member and one of its earliest investors, CMGI chief
executive David Wetherell initially supported the proposal but backed
away after the shares plunged. On Tuesday, he resigned from Lycos'
board, a move he said freed him to work with investment bankers to
assemble a more attractive offer for Lycos.
However, some Wall Street analysts say the proposed combination with
USA Networks does have long-term strategic benefits.
Lycos' plan is to merge with USA Networks' units, including the Home
Shopping Network television network; its related Internet Shopping
Network; Ticketmaster, which sells tickets to public events; and
Ticketmaster Online-City Search.
Supporters of the merger say it would combine USA Networks'
established commercial services with Lycos' electronic commerce
potential.
To them, CMGI's statements against the deal seemed self-fulfilling,
aimed at boosting Lycos's shares closer to their original levels.
"From a practical standpoint, the degree to which he [Wetherell] gets
the stock to go up means whatever else he does is moot," said Keith
Benjamin, an analyst at BancBoston Robertson Stephens who supports the
planned merger.
PaineWebber Inc. analyst Jim Preissler described Wetherell's actions
as "jawboning." "Evening if nothing really happens, he's been effective,
" Preissler said.
People close to Lycos said the company would consider any counteroffer
CMGI might arrange. But these people also think it unlikely CMGI would
be able to assemble an offer more attractive than the one from USA
Networks.
Others said CMGI might still rally enough other disaffected investors
to prevent Lycos from obtaining shareholder approval of the deal. CS
First Boston analyst Lise Buyer wrote earlier this week that she
believes the odds of the deal being completed on its original terms
"are now well less than 50/50."
The unusually public disagreement between CMGI's Wetherell and Lycos
chief executive Bob Davis over the proposed merger centers on their
differing views of how to harvest the potential from an Internet
business.
In an interview yesterday, Davis said he remains committed to the
terms of the agreement with USA Networks and said that the pact
prohibits him from pursuing other merger partners.
In fact, a separate agreement announced by Lycos yesterday to deliver
health care information through its joint venture with USA Networks
only reinforces the benefits of the proposed merger, Davis said.
Under the latest agreement, Lycos will receive $52 million over three
years from WebMD, a closely-held provider of health care information
based in Atlanta. Lycos will distribute WebMD's information both on
line and through its partnership with USA Networks, and Davis said the
payments are among the highest fees ever received by an Internet firm
for content.
"We can do these types of transactions because, with the USA
agreement, we can provide a cross-media platform that no other media
company can," Davis said.
Shares in CMGI fell 2 3/4 to close at 191 11/16 in Nasdaq trading.
By Ross Kerber
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