News > Technology
Lycos, USA call off merger
May 12, 1999: 12:43 p.m. ET

Internet portal, cable network agree to end pact but enter distribution deal
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NEW YORK (CNNfn) - Lycos Inc. and USA Network Inc. officially called off their roughly $20 billion merger agreement Wednesday in the wake of a shareholder rebellion.
     The mutual termination agreement calls for Lycos (LCOS) to pay a $35 million fee to USA Network and Ticketmaster Online-CitySearch -- a majority-owned USA Network subsidiary -- if it enters into another merger agreement before July 15.
     USA Network (USAI) and Ticketmaster (TMCS) likewise agreed not to acquire Lycos stock or make any additional proposals to acquire Lycos during the same period.
     "I think I've learned quite a bit," Robert Davis, Lycos' president and chief executive officer, told CNNfn. "A lot of people misjudged the market on this deal. I certainly did."

Lycos' stock has fallen sharply since the USA Network merger was announced in February

Still, while calling off their marriage, the three parties also announced a new distribution and commerce relationship Wednesday whereby Online CitySearch will provide local content for Lycos' national network and Lycos will gain "substantial" promotion on USA Network's numerous television networks.
     That agreement provides for Lycos sites to feature Ticketmaster Online content and ticket purchase links. The three companies also are close to finalizing a deal whereby the more than 15,000 businesses hosted by CitySearch and its partners will gain access to Lycos' local commerce platform.
     "We're pretty excited about that," said Charles Conn, chief executive officer of Ticketmaster Online-CitySearch. "We definitely miss the value of the larger transaction that was prepared . . . but the good news is we were able to secure what we wanted even though that deal fell through."
Deal's demise was expected

     The deal's demise had been rumored for days after it became evident Lycos shareholders --including its top shareholder, CMGI Inc. (CMGI), which holds a 20 percent stake in the world's No. 2 Internet portal -- would not support the agreement.
     Originally announced in February, the complicated agreement -- crafted by USA Network Chairman and Chief Executive Barry Diller -- called for USA Network to gain a 61.5 percent stake in Lycos. Lycos shareholders would have retained roughly 30 percent of the combined company's stock, with the option to increase their holdings to 35 percent.
     The union would have generated annual revenue of $1.5 billion, but the complicated deal structure left Lycos shareholders upset at receiving only a 2 percent premium for their troubles.
     USA Network officials, however, insisted the deal was fair because Lycos shares already had risen sharply ahead of the deal's announcement. Moreover, Diller's camp was offering to roll Lycos into parts of USA Network with proven earnings and revenue performance, something many Internet companies have yet to demonstrate.
     Bruce Smith, a technology analyst with Jefferies & Co., said the deal's real shortfall was the attempted combination of Internet and non-Internet assets.
     "The problem with USA Network/Lycos was USA Network was using non-Internet assets and transferring them into this entity," Smith said. "That's what scared people."
     In March, CMGI CEO David Wetherell, upset with the deal's structure, resigned from Lycos' board and vowed to pursue another merger partner for the company. Lycos has previously talked with other suitors including CBS Corp. (CBS) and Time Warner (TWX), the parent company of CNNfn.
     Wetherell's defection generated speculation that the cadre of day traders who own an undetermined amount of Lycos' stock might vote against the deal as well at a planned July 1 shareholders meeting in hopes of a sweeter deal.
     Davis said Wednesday he had not spoken to Wetherell since the USA Network deal fell apart, but said he would maintain a good relationship with his company's largest investor.
     "I think it will be a very cordial [relationship]," Davis said. "David and I have worked together for a number of years. I don't know if there is public acrimony. There is public disagreement. We all misjudged this. We all supported this early on."
Not done dealing yet

     In his interview Wednesday, Davis vowed to continue growing his company internally, but suggested his acquisitive appetite isn't yet satisfied, particularly with his company finally able to use pooling of interest accounting methods this fall.
     "Right now, we are really focused on growing this business," he said. "That's the first objective we have.
     "[But] I think it's safe to say we will remain an acquisitive company. We were unique in the competitive setting. That all changes in the fall."
     The future of USA Network is less clear. Like other television networks, the company has been particularly interested in Web site properties because of the cross-promotion possibilities between TV and the Internet. But with few Internet assets to offer, some analysts question if the firm can make an attractive enough offer. Back to top


USA-Lycos deal unravels - May 11, 1999

Investor balks at Lycos deal - Feb. 11, 1999

Lycos, USA Network merge - Feb. 9, 1999



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