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Lycos shares still falling
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February 10, 1999: 11:52 a.m. ET
Lycos merger with USA Networks disappoints, stock falls 13 percent
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NEW YORK (CNNfn) - Shares of Lycos were still falling Wednesday morning, a day after the Internet portal said it would merge with the e-commerce and Internet assets of USA Networks in a highly complex deal that left investors wanting more.
Shares of Lycos (LCOS) fell 12-5/16 to 81-15/16 on the Nasdaq, nearly a 13 percent drop. The stock is down from its 52-week high of 145-3/8 earlier this year.
Lycos, which had suitors lining up outside its door, had publicly stated for months its desire to remain independent.
But Wall Street insisted the company was ripe for takeover, and investors began driving up the company's stock.
They had good reason.
Last month, @Home Corp. agreed to acquire Excite Inc. in a $6.7 billion deal that translated into a 57 percent premium over Excite's prior day closing price $67.50 a share.
Lycos shareholders had been hoping for a similar deal.
"This ended all the speculation," said Prudential Securities analyst Paul Merenbloom. "We know what the answer is. But the combination of USA Networks and Lycos was not necessarily what the Street was expecting."
The complex deal combines the Internet and e-commerce assets of USA Networks, including Ticketmaster Online-Citysearch and Home Shopping Network, with Lycos' Internet portal, creating a company with combined revenue of $1.5 billion and a market capitalization of between $18 billion and $20 billion.
But the value of the Lycos-USA Networks marriage, and its premium for shareholders, is still unclear.
Company executives, however, argue Wall Street should use multiples similar to other Internet firms to assess the size of the deal, which would value it at around $45 billion - representing up to a 150 percent premium for shareholders.
Analysts aren't convinced.
Three leading Wall Street firms Wednesday lowered their ratings on Lycos shares.
CS First Boston cut its rating to "hold" from "buy," BT Alex. Brown lowered to "buy" from "strong buy," and Oppenheimer cut its rating to "hold" from "buy."
Merenbloom said the real concern for the combined company is how well it will be able to compete in the still evolving and highly lucrative electronic-commerce sector.
"It's not so much a matter of the math as it is what's going to happen over the next six months," he said. "I think we see a lot of synergy. The Lycos and USA Networks deal brings together the concept of networking that Lycos's Chairman Bob Davis has been promoting for so long. If you think about it, merging two networks makes a lot of sense."
Merenbloom said electronic commerce is where the combined company will realize profits. "It's not just a matter of collecting the eyeballs, but it's the ability to get paid by advertisers and the ability to take a percentage of the revenues."
How well the company is able to build market share remains to be seen, he said. 
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Lycos
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