USA Networks Scraps Lycos Bid

USA Networks, Inc. (Nasdaq: USAI) said Wednesday it abandoned plans to buy Lycos, Inc. (Nasdaq: LCOS), quashing a complex merger that would have created an e-commerce powerhouse worth $22 billion.

In the face of vehement opposition from Lycos shareholders, the companies said they mutually agreed to call off the deal , which would have combined Lycos with Home Shopping Network and Ticketmaster Online-CitySearch. Lycos also agreed to pay USA Networks $35 million ($US) if it agrees to be acquired by another company before July 15.

The companies said they would remain business partners, however, under an agreement in which Ticketmaster and CitySearch services will be featured on Lycos Web sites.

Opposition Sinks Deal

Barry Diller, USA Networks chairman and CEO, failed to overcome stiff opposition from stockholders who want the Waltham, Massachusetts-based company to retain its pure Internet focus instead of taking on the inventory controls and distribution challenges of a retail company like HSN. USA Networks owns the Home Shopping Network and is a majority shareholder in Ticketmaster Online-CitySearch, the online entertainment guide and ticket agency.

The proposed deal also failed to win over CMGI, an Internet incubator company that held a roughly 20 percent stake in Lycos. CMGI had initially supported the deal but did an about-face after Lycos shares nosedived in February. The two companies offered only terse statements Wednesday and declined further comment on the decision to abandon the merger.

Stock Climbs on News

Lycos stock has soared on news, initially reported in the Wall Street Journal Monday, that the deal was off. The stock continued rising Wednesday, up $7, to $105 a share, in morning trading. Ticketmaster and USA Networks stock also edged upward slightly.

Analysts expect Lycos will be targeted for other potential mergers soon after July 15.

Under the surviving business partnership deal, CitySearch will become the prominent city guide partner for Lycos, providing local content on Lycos' national network. Ticketmaster Online content will also be featured on Lycos sites and ticket purchase links will be directed to the Ticketmaster Online-CitySearch site.

"These new agreements will allow us to secure many of the objectives we sought in the original deal, most importantly a national distribution partner to support our rapidly growing network of city guides and local transactions,'' said Charles Conn, CEO of Ticketmaster Online-CitySearch. "We are also pleased by the opportunity to work with Lycos to explore ways for our large base of local businesses to participate in online commerce."

Lycos, founded in 1995, claims it is the most visited hub on the Internet, reaching 51.8 percent of Web users. The Lycos Network includes Lycos.com, Tripod, WhoWhere, Angelfire, MailCity, HotBot, HotWired, Wired News and Webmonkey.