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Yahoo! now goes it alone
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February 9, 1999: 12:33 p.m. ET
Merger speculation grows after Lycos deal makes it only independent portal
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NEW YORK (CNNfn) - On its own, it's the biggest and best-known of the Internet portals. But now Yahoo! is faced with the question of what to do now that its Web search site competitors are buddying up to some of the most powerful media giants.
That trend continued Tuesday with the announcement that USA Networks (USAI) is merging with Lycos (LCOS), the last other major independent Web search company. Terms weren't disclosed, but the Wall Street Journal says the market capitalization of the new company, USA/Lycos, will be about $20 billion.
Opinion is mixed among analysts as to whether Yahoo! needs to find a pal of its own.
"At some point in 1999, I think they'll pursue something deeper, probably a media empire," says Andrea Williams, an analyst at Volpe Brown Whelan. "I think they're going to want ownership of brands other than their own that can drive people to their site. (They) need some offline assets -- some real-world assets."
Yahoo! is "vulnerable to the extent that they're going to have to do something," says Vince Farrell, chief investment officer at Spears Benzak Salomon & Farrell. "Not necessarily an outright sale of the company … so some sort of very close affiliation."
Master of the Web
But there are dissenters who say Yahoo! has become the top search engine without anyone's help -- and may not need anyone's help now.
"At this point, Yahoo! has gotten to where everyone wants to be," says Michael LeConey, Internet analyst for Security Capital Trading. "And if there's going to be a deal, I think they will be the buyer, not the seller."
He says Yahoo!'s well-organized and content-rich site is the showpiece for the rest of the Internet. "They're the only ones who have done it magnificently," says LeConey. "They've run right by everyone else like they were standing still."
Yahoo! has watched as its other rivals in the not-long-ago fledgling Web search industry have turned to other companies for some help.
Excite (XCIT) has partnered with @home (ATHM), a cable-based Internet service provider backed by the cable giant Tele-Communications Inc. (TCOMA), which in turn is about to become part of AT&T (T). Infoseek (SEEK) is allied with Disney in the new Go Network portal. And Snap is joined with NBC.
A pricey deal
But there's one big difference between Yahoo! and the other formerly independent Web search engines: size. The $14.2 billion capitalization of the Santa Clara, Calif.-based portal dwarfs those of its rivals, making it a more desirable partner than purchase.
And because the content is so strong, and because the company is one of the few actually making money from online activities, analyst Daniel King of LaSalle St. Securities in Chicago says the economics of a deal presents an obstacle.
"There are a broad range of companies that could find fruitful marriages with somebody like Yahoo!," says King. "But there is something of an obstacle because Yahoo! is so expensive. It's much, much larger than Lycos."
"Yahoo!'s so big and so expensive that it could decide to buy some sort of media company," says Williams of Volpe Brown. "It's a sign of how rich its stock is, that it can make acquisitions and not worry about dilution."
King says Yahoo! has to expand, but that it could be done through either partnerships, such as its recent content and linkage deal with Fox, or through acquisitions, such as last month's purchase of GeoCities to add personal Web site and community pages.
"There's no reason why they can't initiate discussions," says King. "It's not a case where you want to wait for somebody -- or else you'll just get passed by."
No perfect match
And there's general agreement among analysts that there's no one perfect partner.
"I think they'd get the most value out of a large media company or a big retailer on the e-commerce front," says Williams. "But there are a lot of different things that can accelerate growth."
"Any of the huge telecoms would turn somersaults for Yahoo!," says Security Capital's LeConey. "But let's look at the economics -- it would have to be a humongous deal."
Yahoo! shares were down 13-11/16 to 144-15/16 in Tuesday morning trading. 
-- by staff writer Mark Meinero
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