Lycos Stock Climbs Amid Talk of Other Offers
The deal to merge the Lycos Inc. Internet search site with elements of USA Networks came under renewed pressure Wednesday, sending shares of Lycos up more than 14% in a dramatic demonstration of investor disenchantment with the terms.
Lycos shares closed at $110--their highest level since the estimated $21.5-billion merger was announced Feb. 9--on expectations that the deal would be significantly restructured or collapse.
But Lycos President and Chief Executive Robert J. Davis insisted Wednesday that the deal remained alive and expressed confidence it would be completed. USA Networks Chairman and Chief Executive Barry Diller was unavailable for comment.
The deal’s uncertainties were stoked by reports that one of the Internet company’s biggest shareholders had hired the investment firm of Morgan Stanley Dean Witter to drum up alternative offers for Lycos.
The shareholder is David S. Wetherell, chairman and chief executive of CMGI Inc., an Andover, Mass., investment firm that was an early financial backer of Lycos and holds about 18.5% of its shares.
As a Lycos board member, Wetherell originally voted in favor of the USA merger. After it was announced, however, he expressed dismay at the price and the market’s negative reaction. On Tuesday, he said he would step down from the Lycos board to explore alternatives to the USA merger, possibly including the outright acquisition of Lycos by CMGI. He was not available Wednesday for further comment.
Davis noted in an interview that Wetherell had frequently expressed his support for the deal but dismay at the price.
“Dave’s been pretty vocal for some time now,” he said. But he insisted that Wetherell’s opposition would not derail the USA deal.
“Speaking for myself and the company, we’re fully committed to the transaction,” Davis said. He said he had not heard directly of Wetherell’s musings about a possible purchase of Lycos by CMGI.
Market observers were divided Wednesday over Wetherell’s intentions. Noting that a merger of Lycos and CMGI makes little strategic sense, Andrea Williams, an analyst for the San Francisco investment firm of Volpe Brown Whelan, called the maneuvering “a bit of a game of poker to see who blinks first.” But she noted that CMGI’s 18.5% Lycos stake will not be enough to block the eventual merger if the company’s other large holders vote in favor.
Perhaps as an expression of confidence in the deal, Davis on Wednesday announced a three-year, $52.5-million co-marketing deal with WebMD, an Internet portal devoted to medical and health care information, that is at least partially predicated on Lycos’ combination with USA Networks. As part of the arrangement, WebMD would receive advertising time on USA, Home Shopping Network and other USA Networks channels directing viewers to its Web site.
Under the terms of the original deal, Lycos is to merge with USA’s Home Shopping Network, Ticketmaster, Citysearch and other units.
The transaction, however, valued Lycos shares well below their existing market price. Accordingly, they fell more than 25% upon announcement of the deal, and have yet to recover.
