The Day After, Investors Still Fleeing Lycos

The financial markets continued to show disappointment Wednesday with the proposed deal between Lycos Inc. and USA Networks.

Lycos shares fell $7 to $87.25 the day after USA agreed to pay less than what investors expected for the No. 3 Internet search directory. Since last Friday, Lycos shares have plunged 36%. The stock had more than doubled this year on optimism that Lycos would be purchased for a fat premium.

Investors are also worried that growth rates at Lycos will slow as it is saddled with higher costs associated with merging some of USA’s businesses with Lycos. USA Networks sank $2.38 to close at $39.25.

USA, the media company headed by mogul Barry Diller, plans to combine Lycos with its cable-TV Home Shopping Network, Ticketmaster ticketing service and Internet operations such as Ticketmaster Online-CitySearch Inc. and First Auction to focus on selling goods and services over the Internet. Lycos attracts users by offering free news and services such as electronic mail and home pages.

Said Paul Cook, manager of the Munder Capital NetNet Fund: “The idea of partnering with real electronic commerce companies like Ticketmaster is interesting but you dilute the Internet aspect and the open-ended growth rate [of Lycos] by doing so.”

The companies said the combined business would be worth $22 billion, but investors aren’t buying that valuation. The two-day decline implies a value of about $15.6 billion for the new company. Ticketmaster’s public shares sank $5.13 to close at $37.13 Wednesday.

A shareholder on Wednesday sued Lycos in Delaware Chancery Court for failing to invite other bids to evaluate the company’s fair market value.