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Investor balks at Lycos deal
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February 11, 1999: 6:56 p.m. ET
CMGI concerned over valuation of proposed merger with USA Networks
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NEW YORK (CNNfn) - Two days after announcing a complex merger between Lycos Inc. and USA Networks, the deal was in danger of unraveling after a key Lycos investor said it may not approve the deal.
CMGI (CMGI), an Andover, Mass.-based Internet venture-capital firm that owns 20 percent of Lycos' outstanding shares, said Thursday it is weighing its options leading up to a vote on the deal.
When the deal was announced Tuesday, analysts expressed disappointment that USA Networks (USAI) offered Lycos shareholders only a 2 percent premium over Monday's closing price of 127-1/4, especially considering the high premiums typically given to Internet companies in mergers.
Lycos (LCOS) shares tumbled 31 percent, in the two days after the deal was announced.
CMGI, which voted for the merger at the board level, said its support for the deal's underlying strategy hasn't changed. However, the company is concerned the sharp sell-off in Lycos shares means the deal won't be beneficial for its shareholders.
A vote to approve the deal is scheduled in two months.
Deal may need to be restructured
Although Lycos says there is no renegotiation in the works, analysts say they may not have a choice if they want to close this deal.
"The deal in its current structure is not likely to go through," said Bruce Smith, an Internet analyst at Jefferies & Co. "It's going to be restructured or Lycos shareholders will get a larger percentage of ownership and USA Networks shareholders get a smaller percentage of ownership."
Lycos Chief Executive Officer Bob Davis told CNNfn he expects to win shareholder approval before the deal comes to a vote.
"I'll be on the road aggressively over the course of the next month, letting people understand all the details of the transaction," Davis said. "That will be an ongoing process."
Investors responded positively to CMGI's stance, sending Lycos shares up 16 to close at 103-1/4 in midday trading. CMGI shares jumped 19-15/16 to 112, while USA Networks shares inched up 3/4 to 40.
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