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Only a 30 Percent Stake?
Lycos Shareholders Are Steamed

By Paul Tharp  The New York Post
NEW YORK — 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.


Peter Morgan/Reuters
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 complex merger.

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 shopping business.

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 Wednesday.

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 announced.

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.

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