Home shopping czar Barry Diller is facing an
investor revolt and a firestorm of Wall Street criticism
over his deal to buy Internet darling Lycos.
|USA Networks Chairman Barry Diller and Lycos Inc. President and Chief Executive Robert Davis
The criticism is fueled, in part, by Lycos shareholders
who fear the Hollywood veteran outmaneuvered the
young management of the No. 3 web portal in his
Diller, who will control 61.5 percent of the new entity,
to be called USA/Lycos Interactive Networks Inc.,
envisions a world where web surfers will move from
the Lycos search engine to his Ticketmaster online to
Home Shopping channel.
Shareholders are angry because they have seen
their shares double since Jan. 1 and expected Internet
fever would pay off with a fat premium. Instead they
will receive just a 30 percent slice of the new business.
They also are concerned the pie-in-the-sky hopes of the
Internet will be grounded by the more pedestrian
In fact, one Lycos stockholder immediately sued to
undo the deal, while others fired off e-mail protests to
larger shareholders urging them to vote down the deal.
Diller and other executives said the deal was worth $22
billion although some critics of the merger, citing the
drop in Lycos' net worth, said the deal may now be
worth $15 billion.
"This revolt wasn't unexpected," said Brian Hill at
Adams Harkness & Co. "They don't like being dragged
kicking and screaming out of the Internet."
Lycos' two-day stock decline wiped out one-third of its
value since the deal was announced. It fell 7 to 87 1/4
Some said the drop put completion of the deal, as it now
stands, in question.
USA Networks fell 1 5/8 to 40, while
Ticketmaster-CitySearch, which is 60-percent owned
by USA Networks, fell 4 3/4 to 37. Seagram Co. Ltd.,
which owns 45 percent of USA Networks through a
limited liability company, rose 1 to 48 11/16.
"If the stocks continue to react as badly," wrote CIBC
Oppenheimer & Co. analyst Henry Blodget in a note to
investors, "Lycos and Mr. Diller may well call the
whole thing off an action that might cause the Lycos
stock to pop back up."
"I changed my mind because the financials of the deal
aren't visible, it's confusing to everyone," said Andrea
Williams of Volpe, Brown Whelan & Co.
What particularly annoyed investors was that top brass
of Lycos bailed out weeks ago by filing to sell some $92
million of their shares before the USA deal was
Listed as sellers were Lycos executives and chiefs at
investment fund CMGI Inc., which is Lycos' biggest
investor with 20 percent.
Lycos CEO Robert J. Davis filed with the Securities
and Exchange Commission to sell 132,000 shares in
January when the stock was 112, and CMGI Inc. filed
to sell 900,000 shares, or 2 percent of Lycos shares.
Others filing to sell included Lycos CFO Ed Philip,
45,000 shares for $5.8 million.