USA Networks ends offer for Lycos

Shareholders' opposition blamed

new bid possible


May 13, 1999|By BLOOMBERG NEWS

NEW YORK -- USA Networks Inc., the media company run by Barry Diller, dropped its plan to buy No. 3 Internet search service Lycos Inc. yesterday because of opposition from Lycos shareholders.

Lycos' shares had declined by more than one-third after Diller proposed combining the companies in February. The Waltham, Mass., company's shares recouped about 35 percent of that loss as opposition to the plan increased, and rose $8.75 yesterday to $107.

Shareholders led by David Wetherell, head of CMGI Inc., the Internet venture company that is Lycos' biggest shareholder, opposed the combination because it did not offer any premium. Lycos Chief Executive Officer Robert Davis had argued that the combination would eventually result in a more profitable company.

"It's hard to get excited about a deal that values your stock at less money than before you started," said Michael Goldston, a portfolio manager at Cambridge Equity Advisors. "Shareholders are more interested in short-term gratification."

Diller wanted to combine Lycos with his home-shopping and electronic-retailing businesses, giving Lycos shareholders 30 percent of the new company. USA holders would have got 61.5 percent of the merged company.

In March, Wetherell quit Lycos' board and hired Morgan Stanley Dean Witter & Co. to find other buyers.

Shares of New York-based USA Networks rose $3.56 to $39.4375. Andover, Mass.-based CMGI fell $4.9375 to $239.75.

Under terms of the break-up agreement, Lycos will pay USA Networks and Ticketmaster Online-CitySearch Inc., which USA Networks controls, $35 million if Lycos begins acquisition talks with other companies before July 15. USA Networks and Ticketmaster have agreed that they would not acquire Lycos stock or make another proposal to buy Lycos before July 15.

USA Networks also dropped an option to buy as much of 17.5 percent of Lycos that became effective if the acquisition was terminated.

Still, analysts and investors said the agreement left the door open for USA Networks to make another bid for Lycos.

"I believe a few months from now Lycos will be available to Diller at prices significantly lower than today," said Larry Haverty, a portfolio manager at State Street Research & Management. "If Internet [stock] prices drop, they should be ready to strike a deal."

The companies also said they agreed to content and distribution agreements. Ticketmaster's CitySearch will provide content to Lycos and Ticketmaster Online will be featured on Lycos' World Wide Web sites. They also will promote each other's brands.

Lycos will look to make acquisitions to help increase traffic on its Web sites and bolster its electronic commerce business, Davis said. It will be able to account for purchases as a pooling of interests later this year, allowing it to combine assets without taking merger-related charges against earnings.

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