Lycos Investor Quits over Deal
Reuters
7:40 a.m. 9.Mar.99.PST
A key member of the Lycos board of directors
resigned Tuesday in protest over the proposed
Lycos-USA Networks deal.
The resignation of CMGI chief executive David
Wetherell, an original Lycos board member, set the
stage for a showdown over the sale of the
company. He said he plans to solicit other
shareholders to press for a higher price for the
sale of Lycos or, barring that, to try and block the
sale.
Lycos (LCOS) confirmed Wetherell's resignation
from its board but said it remained committed to
the merger.
USA Networks did not return calls regarding
Wetherell's resignation. But USA Networks' chief
Barry Diller is already on record as saying that he
has no intention of renegotiating the Lycos deal.
Wetherell's move directly challenges the deal,
announced a month ago, that would create a
new-media and e-commerce powerhouse. The
new company -- to be called USA Lycos Interactive
Networks -- would combine Lycos, a top Internet
destination, with USA Networks' Home Shopping
Network TV, and USA's majority interest in
Ticketmaster Online-CitySearch (TMCS).
Wetherell made it clear that he opposes the
present agreement for economic reasons only.
"I still believe the pieces of the deal make a lot of
sense. It's the economics that don't," Wetherell
said of the financial terms of a merger which
analysts estimate at between $17-$18 billion.
"Lycos is worth a good deal more than its value
today."
He said that if the deal is restructured more
favorably for Lycos shareholders, he would support
it.
Meanwhile, Wetherell's company, CMGI -- the
largest Lycos stock owner with 18.5 percent -- has
hired investment banker Morgan Stanley to press
other shareholders for changes on the Lycos
merger.
Lycos Investor Quits over Deal Page 2
7:40 a.m. 9.Mar.99.PST
continued
Lycos shares responded to Wetherell's
resignation, jumping US$13 in early trading to
$96.87, as investors speculated over whether
concerted opposition to the deal could lead to the
merger being rejiggered in favor of Lycos
shareholders. At the same time, stock in Internet
venture fund CMGI (CMGI) gave back some of its
recent gains before recovering to $219.69, up $20,
after ricocheting between a high of $226 and a low
of $185.125.
Lycos stock, which was as high as $137 before the
deal was announced, had fallen nearly 40 percent
in the last month amid market confusion and
disappointment with the terms, which many
analysts see as favoring USA Network (USAI)
holders at the expense of Lycos and Ticketmaster
ones.
Wetherell said the sharp fall in the value of Lycos
stock had made the terms of the deal dilutive to
Lycos and Ticketmaster shareholders. The deal
hinges on a complex formula involving the stocks
of all three companies.
Wetherell said if Lycos fails to receive a better
price, he will advocate Lycos go it alone as an
independent firm or seek another traditional media
partner.
"Lycos is the last kingmaker today," Wetherell said
of the company's powerful position on the Internet,
noting that 48 percent of Internet users pass
through its network of electronic media, commerce,
and communication sites each month.
CMGI was an original financial backer of Lycos,
and controlled a majority stake in Lycos until
November 1997.
Ahead of his resignation, CMGI stock surged
Monday to $47.50, or 31 percent, to a new record
high of $199.69. CMGI is one of only a handful of
Internet stocks now trading at record highs after a
sell-off fueled by the sector's high valuations.
Diller says the merger creates the first Internet
company with rational business underpinnings,
including $1.5 billion in revenues. He said the huge
market capitalizations awarded to Internet stocks
are built largely on paper value. That's
compounded when a company like Lycos uses its
high-priced stock to buy other Internet firms valued
largely on future earnings prospects. Lycos is in
the process of buying the parent company of Wired
News.
One Silicon Valley investment banker observed that
Diller was unlikely to back off, even in the face of
CMGI opposition.
"Betting against Diller can be dangerous," said
Barry Newman, head of technology investment
banking at NationsBanc Montgomery Securities in
San Francisco. His comments came Monday,
ahead of Wetherell's departure. "This is the fourth
or fifth time people have said he's crazy," Newman
said, referring to Diller's history of prevailing in
drawn out corporate merger battles.
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S A L L Y K H U D A I R I
Lead, Open Web Systems Strategy
Cambridge Technology Partners http://www.ctp.com/
+1.617.679.5475 - Cambridge +1.212.539.7880 - New York
+1.212.624.4020 - New York/office.com [preferred, through March 1999]