Score one for the Internet. After months of speculation, Lycos , USA Networks and Ticketmaster/CitySearch agreed to pull the plug on the merger agreement the companies signed in February.
When the merger was announced, investors rebelled because they felt that Lycos wasn't getting a significant premium from USA in the deal, in comparison with other spectacular Internet transactions. Stock in Lycos plummeted from about $US130 a share before the deal to a low of approximately $79 in April.
Many observers say the merger was effectively killed when CMGI's David Wetherell defected from the Lycos board of directors and publicly spoke out against the merger. That move, along with significant negative reaction from institutional and retail investors, caused the companies to back out of the deal.
Wetherell's defection led to a public debate on the valuations of Internet companies, with USA's Barry Diller heading the position that Web companies are overvalued because their businesses aren't mature. Wetherell, of course, holds the opposite view. In mid-day trading after the news was announced Wednesday, investors backed Wetherell firmly, sending Lycos shares up about 10 percent.
Under the termination agreement, Lycos agreed to pay USA and Ticketmaster $35 million if Lycos agrees to, or becomes the subject of, formal acquisition proposals before July 15. Lycos CEO Bob Davis said in a conference call this morning that the parties involved had not expected the investing public to react this way to the proposed merger.
"It's clear that when we put the deal together a lot of people misjudged how difficult it would be to put a transaction together," Davis said. "I did, Barry Diller did, and CMGI's David Wetherell did."
While Davis said that relations between him and Wetherell are "cordial," he also said that Wetherell will not rejoin the Lycos board. In two separate conference calls Wednesday, executives from both companies pledged to continue the alliances they had formed while preparing to merge with USA Networks. Charles Conn, the CEO of Ticketmaster Online-CitySearch, said his firm has reached a "nice agreement" to provide localised content and services for Lycos, but declined to reveal the terms of the agreement.
Under the nonexclusive arrangement, Lycos users will be able to get information about local businesses and services through CitySearch's databases, and can also purchase tickets online through links to TicketMaster. In return, Lycos will be a favored search engine on the Ticketmaster and CitySearch sites.
Lycos will also be promoted on USA Networks channels and other areas of Ticketmaster-CitySearch's services. When asked whether this cross promotion might be better than an outright deal, Davis bristled. "What I don't get is ownership of the assets and the commerce infrastructure of USA Networks," he said.
Conn said that Ticketmaster would also be providing an e-commerce platform for Lycos, but did not specify what types of commerce. Conn said that there was still a good chance that assets of USA Networks and the Home Shopping Network - the third partner in the failed merger - would be used to enhance e-commerce over Lycos and Ticketmaster Online. So far, Conn said, CitySearch has seen a jump in florists and retailers selling goods on its site.
E-commerce, of course, was supposed to have been one of the strongest selling points of the proposed merger. Conn said the companies might still work together. "We remain partners with Home Shopping Network even without the merger," he said. "There's no particular reason why HSN would be exclusively working with any one portal partner."
The Home Shopping Network is part of USA Networks, Inc,, which has had a controlling interest in Ticketmaster since 1997.
Ticket sales might help Lycos maintain its market share in the busy portal wars. Although the business of online ticket sales has not grown as quickly as many industry experts had hoped, the Web now represents a significant portion of ticket sales. In the most recent quarter, Ticketmaster Online says, 8.7 percent of all Ticketmaster tickets sold in the U.K., Canada and the U.S. were sold online, up from 2.5 percent a year earlier. And in March of this year, Conn said, the online share exceeded 10 percent. USA Networks did not return a call seeking comment.