By Nick Patience
As widely anticipated, the largest deal involving a web portal, the one between Lycos Inc and USA Networks Inc has been called off. The parties say the agreement is by mutual consent, but it is centered on the resistance of certain Lycos shareholders to the amount USA Networks was offering.
Under the terms of the original deal announced on February 9, USA and its Ticketmaster Online-CitySearch and Home Shopping Network (HSN) units would combine their assets with Lycos in a company with a total value of about $18bn. It was to have been called USA/Lycos Interactive Networks Inc and would have had combined annual revenues of $1.5bn, based on 1998 sales figures. The deal needed the approval of 51% of Lycos’ shareholders, among other requirements. And as soon as David Wetherell, the chairman of CMGI Inc (the largest shareholder with about 20% of the company) voiced misgivings within the days of the announcement, the prospects did not look good.
Bob Davis, the rapid-fire president and CEO of Lycos acknowledged that the company was always fighting the tape and admitted that a lot of people misjudged how difficult it would be including himself, Wetherell and Barry Diller, chairman of USA.
Even though the marriage has been called off, the pair are to remain friends, with an agreement between USA’s Ticketmaster- CitySearch unit and Lycos whereby CitySearch becomes the preferred local guide provider across the Lycos network of sites and Ticketmaster’s content will be featured on Lycos and all ticket purchases will be directed to Ticketmaster. Although Lycos has international versions of its service, it currently has no local guides to US cities, which rivals such as Yahoo! Inc, Excite Inc have had for some time. In addition, Lycos will get promotion on various USA channels, including USA and the Sci-Fi Channel and every Ticketmaster envelope that is sent out will have a Lycos logo on the back. All the cross-promotional deals are non-exclusive.
The termination agreement requires Lycos to pay USA $35m if it enters into any other merger agreements before July 15 this year and USA agrees that it will not acquire any Lycos stock or make any proposals to buy the portal before that date. USA has also dropped an option to buy as much as 17.5% of Lycos if the agreement was terminated. USA currently has no position in Lycos, says Davis.
Despite the failure of the deal, Davis is upbeat about his company’s future. He says Lycos is looking for acquisitions, which is the way the company has grown so fast in the past couple of years. He says the deals will be more of the same: reach and traffic, and promises some announcement very soon, possibly as early as next week. Lycos was a good business three months ago and it’s a great business today, he says. Davis also predicts some positive news next week about the $83m acquisition of Wired Digital, which has been dragging on since October 1998 and has faced similar shareholder problems. Lycos will announce its third quarter results for the period ending April 30 next Tuesday, May 18.
Davis says that come the late summer, early fall, Lycos will become a poolable company, putting it on a level playing field with rivals that can make acquisitions as poolings of interest and take goodwill charges. Lycos was not able to do that because of the majority shareholding that CMGI had until recently. The Financial Accounting Standards Board recently voted to abandon the pooling of interest acquisition method and the Securities & Exchange Commission is known to have similar misgivings, but nothing is expected to change before next year (05/10/99).
Asked what he would have done differently with regard to this deal, Davis says he would have done more pre-selling of it across the board. He says the termination is a disappointment but claims the company’s brand recognition is now higher than it has ever been, based on the number of stories in the press that have been written about the company. Davis is presumably banking on there being no such thing as bad publicity. He describes Diller as a man of great integrity and claims relationships with Wetherell are cordial, but he won’t be invited back onto the Lycos board, from which he resigned a month after the deal was announced. Lycos closed up $8.75, or 8.9% at $107.00, while USA finished up $3.5625, or 9.9% at $39.4375. Prior to the February 9 announcement, Lycos was trading at about $127and shed 26% on the day of announcement, reflecting the shareholder anxiety that eventually scuppered the deal. á
