Shares of Lycos Inc. continued on a roller-coaster ride
last week, fueling speculation that its planned merger with USA Networks Inc. could get
derailed.
USA and Lycos announced two weeks ago a plan to combine the
Internet portal company with USA's Ticketmaster Online-CitySearch and Home Shopping
Network units, creating a new company -- USA/Lycos Interactive Networks Inc. -- with
combined revenue of about $1.5 billion.
In addition, the merger would create an electronic commerce
powerhouse, combining Lycos' strong Internet presence -- it has about 30 million
viewers annually -- and Home Shopping Network's 70 million viewers and marketing and
direct sales acumen.
But the structure of the deal has made Lycos shareholders
skittish, believing that USA is getting a bargain for its money.
According to the deal as it now stands, USA would receive
61.5 percent of the new company and Lycos would get 30 percent. The remaining 8.5 percent
would go to shareholders of Ticketmaster.
But one of Lycos' biggest shareholders, CMGI Inc., an
Amherst, Mass.-based investor in Internet stocks, apparently is unhappy with the puny
premium USA is paying for Lycos -- 2 percent. And according to published reports, CMGI is
willing to vote against the deal unless Lycos' stock returns to its pre-merger
announcement levels.
Lycos stock took a bath after the announcement was made
Feb. 9, closing at $94.25 per share that day, down $33. Although the stock began to climb
back in subsequent trading -- it reached $103.25 a share on Feb. 11 -- the stock continued
to slide and closed at $87.44 a share, down $4.56, on Feb. 17.
Michele Perry, a spokeswoman for Lycos, said that nothing
new has happened with the deal, and that the company, along with USA, has been busy
talking with analysts and shareholders to explain the merger.
Part of the problem is the merger's complexity.
Instead of an outright purchase of Lycos, the Internet portal is actually purchasing HSN
and Ticketmaster in exchange for stock. And that is the reason that USA is not paying a
hefty premium for Lycos.
"There certainly was some confusion about the
structure and what it means," Perry said. "As we spend time with people, they
realize it does make sense. This process [of speaking with analysts and shareholders] is
helping."
CMGI reportedly is asking for the deal to be restructured,
with Lycos receiving a bigger stake in the new venture. And though neither company is
talking at the moment, it is unlikely that a restructuring will take place.
CMGI issued a cryptic statement on Feb. 11, at the request
of the National Association of Securities Dealers Automated Quotation system -- the
exchange on which both stocks are traded -- that did little to quell investor fears.
In the statement CMGI said that it is "generally
supportive of the Lycos/USA Networks transaction as previously reported, but reserves the
right to reassess its position as developments unfold."
But at least one analyst, who asked not to be named,
speculated that the whole controversy is just a ploy to attract another suitor.
Lycos has admitted in the past that it had been in
negotiations with Time Warner Inc. and NBC, but those deals fell through before USA made
its bid. And now that USA has made a solid offer for the Internet company, the analyst
said the hope is to start a bidding war.
"The first goal is to create an auction, and everybody
is getting sucked into it," the analyst said.
