New York -- USA Networks Inc. chairman Barry Diller,
addressing opposition from some Lycos Inc. shareholders to USA's planned merger with
Internet portal Lycos, touted the deal as a sensible combination of traditional and
new-media companies.
Speaking at a Jupiter Communications conference here,
Diller said it made sense to him that USA, with $1 billion in annual revenue and $300
million in profit, would buy a company with $100 million in revenue and no profit. But, he
said, he was told later that this was "counterintuitive" to current
Internet-market valuations.
Diller didn't directly address the controversy over
the Lycos deal. But while touting the value of combining assets like USA's Home
Shopping Network and Ticketmaster Online-CitySearch Inc. with Lycos, he did say that he
hoped that David Wetherell, chairman of Lycos shareholder CMGI Inc., was listening.
CMGI said after the deal was announced last month that it
was "generally supportive" of the transaction, but that it "reserves the
right to reassess its position as developments unfold."
After his speech, according to reports, Diller went further
and said that he had no plans to rework the Lycos transaction terms.
CMGI and other Lycos holders were unhappy because the
transaction will leave Lycos with only about 30 percent equity in the merged company. USA
shareholders would control about 61.5 percent equity of USA/Lycos Interactive Networks
Inc., with the remainder owned by Ticketmaster shareholders.
Diller reportedly said he hadn't done a good job of
communicating the deal benefits, but he repeated his earlier position that shareholders
will come around to backing the deal by the time they vote on the merger in three to six
months.
Lycos CEO Bob Davis has also said that he believes that the
deal is growing on shareholders, and he was quoted at a Feb. 26 news conference predicting
that CMGI would ultimately back the deal.
Meanwhile, last Wednesday, a pair of law firms announced
that they had filed a class-action shareholder lawsuit against Lycos in federal court in
Boston. Lycos' share price has fallen from $137 Feb. 5 to $89 last Wednesday.
Diller said Lycos shares had run up in price on takeover
speculation, with buyers hoping that Lycos would command a big premium the way that Excite
Inc. got a market premium in At Home Corp. shares under the terms of that proposed
acquisition.
During his Jupiter speech, Diller said the deal may have
let out some of the hot air in Internet stocks -- or, as he put it, the deal valuation may
have implied that the emperor is less than fully clothed.
Diller said he felt that the long-term winners in
electronic commerce would be the ones that could combine mass audiences and that draw on
older media, such as broadcast and cable networks, to promote the new services.
Internet search engines, like Lycos, need to move beyond
advertising-revenue bases and into "direct selling" -- as do TV networks, Diller
added.
