USA Networks, Stymied by Holders, Is Expected to Give Up Lycos Bid
By EBEN SHAPIRO
Staff Reporter of THE WALL STREET JOURNAL
USA Networks Inc., stymied by stiff shareholder opposition to its
agreement to buy Lycos Inc., is expected to abandon its three-month-long
bid to acquire the Internet company, according to people familiar with the
matter.
USA Networks hasn't reached a final decision about walking away from
Lycos, but USA Networks has concluded that it can't win the approval for
the bid in a vote of Lycos shareholders, these people say. That vote had
been planned for July.
It is possible that USA Networks will decide to sweeten its bid for the
Internet portal company. But Barry Diller, USA Networks chairman and
chief executive officer, has so far rejected such a move, making an
amended bid unlikely. USA Networks, based in New York, declined to
comment.
An official at Lycos, Waltham, Mass., declined to comment.
One calculation driving USA Networks' thinking, according to bankers
close to the company, is that if USA Networks walks away from Lycos
now, it would have a chance to swoop back in and rebid for Lycos at a
later date in the event that Internet stock prices fall sometime soon. In fact,
part of the reason USA Networks persisted with its bid in the face of
resistance from some shareholders, is that the Diller camp thought there
was a good possibility that technology stocks would decline significantly
before the July vote, making the bid more attractive.
More immediately, USA Networks is expected to aggressively pursue
other Internet deals or partnerships through its Ticketmaster
Online-CitySearch Inc., a publicly traded Internet company controlled by
USA Networks. USA Networks also operates three cable channels --
Home Shopping Network, USA Network and the Sci Fi channel.
Another big factor in USA Networks' thinking is 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.
If USA Networks drops its bid, it will leave 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 Corp.
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.
In February, USA Networks reached an agreement with the Lycos board
to acquire control of the Internet portal through a combination producing a
new company with $18 billion in total assets. Shareholders of both USA
Networks and Lycos were to be paid with stock in the new company,
called USA/Lycos Interactive Networks Inc., with 30% of the shares
going to Lycos holders.
But despite the initial agreement, USA Networks' bid for Lycos almost
immediately turned into a battle between Mr. Diller and David Wetherell,
chief executive of CMGI Inc., a holding company specializing in Internet
investments that is the largest shareholder in Lycos with about a 20%
stake. As a Lycos board member, Mr. Wetherell voted to approve the
deal with USA Networks.
But in an unusual series of steps, after Lycos's stock plunged 26% on the
news of the pact with USA Networks, Mr. Wetherell resigned from the
Lycos board and hired investment bank Morgan Stanley Dean Witter &
Co. to seek other bidders for Lycos. Mr. Wetherell even held out the
prospect that CMGI would bid for all of Lycos, but later backed away
from that possibility. No bidder has emerged, although Lycos has been
shopped extensively to other media companies, including to General
Electric Co.'s NBC unit.
Mr. Wetherell declines to say whether he will continue his search for a
Lycos partner if the USA Networks deal falls through. He says he would
be content to see Lycos as an independent company, but says it could also
benefit from a strategic partner.
Lycos shares closed Friday in Nasdaq Stock Market trading at $89.50 a
share, up 50 cents. In the months preceding the USA Networks offer,
Lycos's shares soared 174%, riding the twin waves of the Internet frenzy
and takeover speculation.
Internet executives say that the uncertainty surrounding the USA Networks
deal has been an unsettling distraction for Lycos in the fast-moving Internet
world. Still, Lycos recently topped Yahoo to become the most-visited
portal on the Internet, with its various Web sites attracting 31.9 million
visitors in March, according to Media Metrix, an Internet measurement
firm, just ahead of Yahoo's 31.2 million visitors.
Also contributing to opposition to the deal was that while Lycos would
contribute all of its assets, USA Networks, to obtain its controlling share,
agreed to contribute its Home Shopping Network and its stake in
Ticketmaster Online-CitySearch.
The USA Networks-Lycos agreement apparently contains no break-up
fee for scrapping the deal. USA Networks has the right to receive options
to purchase as much as 17.5% of Lycos shares if Lycos shareholders vote
down the deal after Lycos received a bid from another suitor. The options
are also triggered if Lycos holds takeover discussions with anyone else.
But if Lycos shareholders rejected the deal without a competing bid, the
options agreement would be terminated.
--Jon G. Auerbach contributed to this article.
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