Crazy Like A Fox

Conventional wisdom holds that Lycos chairman Robert Davis was taken by USA Networks head Barry Diller in their $18 billion merger agreement this week.

But let’s take a closer look.

First, the synergies between broadcasting and online buying are proven. The Home Shopping Club proved them over a decade ago, and that’s now in Davis’ portfolio. So is HSC’s Internet Shopping Network, and its First Auction site. Once the deal is done Davis also becomes chairman of Ticketmaster-CitySearch, and the largest aggregator of traffic on the Internet.

Look at what Davis will be managing now. The company he’ll run has billions of dollars in sales and hundreds of millions in profits — enough to fix any unit that’s not performing. (The old Lycos had just $100 million in sales, and was marginally profitable.) The new Lycos also has a huge upside, because many elements in the portfolio aren’t leaders in their niches. (ISC is chasing QVC.Com, while First Auction trails eBay.) There is also a complete portfolio of net offerings, including news, entertainment, local services, auctions, and a full e-commerce back-end.

Of course this solves some big problems for USA Networks head Barry Diller. He’s an entertainment mogul and dealmaker, not a “net-head,” but he was being pushed into the Internet and he knew those units were underperforming. So he gets a proven entrepreneur to run them and spins them out with a short leash, keeping 61% of the whole. Meanwhile Diller’s main USA Network holding, his Universal movie studio, and his TV stations are insulated from any of the Internet’s potential downside.

Lycos is valued at $6.5 billion in this deal, so it’s hard to claim it’s undervalued. And if this takes some out of the air from the Internet stock bubble, that’s not all bad, since those companies are Davis’ competitors.

So, is Robert Davis really crazy? Oh yes, he is. He’s crazy like a fox.

What do you think? Let’s talk about it.

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