In a marriage of TV and the Internet,
USA Networks Inc. and Lycos Inc. agreed Tuesday to merge,
forging an interactive entertainment and e-commerce giant to be
headed by veteran television executive Barry Diller.
The combination will create a powerhouse with more $1.5
billion in annual revenues and the capacity to reach 70 million
TV households and 30 million Internet users.
Terms of the deal call for Diller's USA Networks, which is
45 percent owned by Canada's Seagram Co. Ltd., to control 61.5
percent of the company, Lycos shareholders to hold 30 percent
and Ticketmaster holders 8.5 percent, the three companies said
in a statement. The merged company will be called USA/Lycos
Interactive Networks Inc., with Diller as its chairman.
An investment banker involved in the deal said, "the
aggregate value of 'NewCo' [the merged company] is $17 [billion]
to $18 billion," based on Lycos' fully diluted market value,
including options of about $5 billion divided by the 0.30
The deal got a mixed reception on Wall Street. Lycos shares
tumbled $33, almost 26 percent, to close at $94.25, while USA
Networks stock rose $3.69 to $41.625 on the NASDAQ.
One analyst said investors were apparently disappointed
that the merger apparently would not carry a handsome premium
for Lycos stockholders.
Lycos Chief Executive Robert Davis, who admitted he held
merger talks with "everybody", said the deal that was finally
announced is, "the opportunity to create the most dominant
e-commerce entity in the world."
Davis downplayed the negative reception the deal met on Wall
Street and said investors will come around once they gain a
better understanding of the deal's value. He also noted that the
entire Internet sector has been off the past two days.
Davis, who will be CEO of the combined firm, said the deal
should be valued using an Internet industry revenue multiple.
By that measure, using Lycos's pre-merger price/revenue
valuation, the combined entities that will form the new
USA/Lycos Interactive Networks Inc., would have a market value
of $45 billion, on sales of $1.5 billion, Davis said.
The new company will combine Lycos with USA Networks'
various operating units, which include Home Shopping Network,
Internet Shopping Network/First Auction, and its majority
interest in Ticketmaster .
USA/Lycos will have the reach of a national cable TV network
combined with the broad range of Internet media, communications
and commerce capabilities.
"This places all the necessary ingredients for electronic
information and commerce ... into one centrally and aggressively
managed enterprise," Diller said in the statement. "There is
no excuse now for us not to be a dominant player as the world
continues its transition toward interactive systems."
The deal caps weeks of speculation about whether Lycos was
seeking to merge with a major media company or form a
partnership in exchange for a large investment in the company.
The trend was started last year, when the Walt Disney Co.
bought half of Infoseek and incorporated it into its new Go
portal. Also NBC has bought a small portal, Snap, while Yahoo!
has purchased Geocities, and Excite was bought by At Home, which
offers Internet service via cable TV lines.
Until last week, Lycos was said to have been in "serious
talks" on such a partnership with General Electric Co.'s NBC
network, according to a source familiar with the talks. Other
reports paired them with Time Warner Inc. and German publishing
and media giant Bertelsmann AG .
The deal offers enormous potential for cross-promotion
between television and the Internet.
USA/Lycos television will have the capacity to reach 70
million homes. Its Home Shopping and Ticketmaster properties
will be able handle more than one million telephone transactions
and ship more than 200,000 items each day.
On the Internet, USA/Lycos will reach about 30 million
people, nearly 50 percent of all users, through its network of
The company will operate four of the top 20 Web sites
including Lycos, a leading "portal," or central starting point
for finding news, electronic mail, online shopping and
discussion groups and Web searches.
Its Ticketmaster Online-Citysearch business runs a network
of 19 online city guides in the United States and Canada.
The deal is subject to regulatory approval and a vote by
Lycos shareholders. Internet venture fund CMGI Inc. agreed to
vote its 20 percent stake in Lycos in favor of the deal.