NEW YORK (CNNfn) - In the face of a shareholder rebellion against its buyout offer, USA Networks Inc. will abandon its plans to buy No. 2 Internet portal Lycos Inc., sources said Tuesday.
An announcement about the deal's demise, which would follow a spate of signs in recent days the deal was on shaky ground, is expected to come Wednesday morning, sources said.
USA's buyout bid, crafted by its Chairman and Chief Executive Barry Diller, was fraught from the start, in large part because it confused investors and, unlike many other Internet deals, it failed to offer a premium for Lycos shares.
However, USA Networks insisted its offer was sufficient because Lycos shares had already risen sharply ahead of the announcement. Moreover, Diller's camp was offering to roll Lycos into parts of USA Networks with proven earnings and revenue performance, something many Internet companies have yet to demonstrate.
CMGI backs out
But, just days after agreeing to the buyout, CMGI Inc., Lycos's major shareholder, with about a 20-percent stake, said it would no longer support the merger.
David Wetherell, CMGI chairman and chief executive officer, resigned from Lycos's board in protest and vowed to find another bidder. That new bidder never showed.
But the USA deal fell apart as it became increasingly clear shareholders, slated to vote on the deal July 1, would reject the deal. A big chunk of Lycos's outstanding shares is in the hands of day traders, who weren't likely to vote in favor of the deal.
The deal was aimed to combine USA's Internet and e-commerce assets, including Ticketmaster Online-Citysearch (TMCS) and Home Shopping Network, with Lycos's portal to build a company with combined revenue of $1.5 billion and market capitalization of $18 billion to $20 billion.
The deal's collapse leaves Lycos looking for a new partner. Later this year the company will be eligible for "pooling of interest" accounting status, allowing the company to structure a more favorable deal.
Lycos had held talks with General Electric's NBC network, CBS (CBS) and Time Warner (TWX). Time Warner is the parent of CNN and CNNfn.
Television networks have been particularly interested in web-site properties because of the cross-promotion possibilities between TV and the Internet.
The move may also raise questions about the future of Lycos President and Chief Executive Officer Robert Davis who had been a vocal proponent of the USA Networks deal even after CMGI withdrew its support.
In Nasdaq trading on Tuesday, shares of Boston-based Lycos (LCOS) fell 7 to 98-1/4, USA Networks (USAI) climbed 5/8 to 35-7/8, while CMGI (CMGI) gained 6-3/4 to 244-11/16.
But in after-hours trading, shares of Lycos traded as high as 105-1/4 as news of the pending announcement became clear.
-- staff writer Jamey Keaten contributed to this report