USA Networks Inc chairman Barry Diller, speaking on US public television’s Charlie Rose show last week dismissed the acquisition of Excite Inc by @Home Networks Inc last month as one piece of paper buying another piece of paper. Maybe, Barry, but at least they already had the paper proxy forms approving the deal from most of the key shareholders before the deal was announced. The USA-Lycos-Ticketmaster On-line-CitySearch merger, on the other hand, appears to be hitting trouble on at least two fronts. We reported last week on the ambivalence of CMG Information Services Inc, the largest shareholder in Lycos Inc, which following the plummet in Lycos’ share price after the deal was announced, issued a statement last Thursday denying reports that it was going to vote against the deal, saying that it is generally supportive of the transaction, but reserves the right to reassess its position as developments unfold. But reports yesterday suggest that an earlier deal that involved Lycos buying Wired Digital, could also be under threat and the implications of that on the wider deal are unclear. Yesterday, CMG had no update on its status, could not comment on reports coming out of London that the deal has already been scrapped, or on the implications of the Wired shenanigans. It also declined to say whether or not it had had any other suitors offering to buy its Lycos shares. Lycos itself had no comment on any aspect of this story. The Wired story published by TheStreet.com and Salon magazine is extremely complex, but basically involves holders of series B and C preferred stocks in Wired, who came in after Wired Ventures pulled its IPO on October 1996, appropriating much of the Lycos stock being used to pay for the deal, which valued Wired at $83m (10/07/98). The class A and common shareholders, who had been with Wired from way back, are understandably aggrieved at this and looking to see if the moves by the series B and C shareholders are illegal, according to the story. The blame is placed mainly on the C-class shareholders, represented by two east coast investment firms, Providence Equity Partners and Tudor Investment Corp, The C shares were issued in December 1996, with the condition that any new investment in Wired required the C shareholders’ approval. Money began running low at Wired and Providence secured a $10m line of credit, but with the condition that six of the 11 seats on the Wired board would go to Providence and Tudor and the votes of the A and B shareholders would go into a voting trust that would control their votes regarding any sale of the company. That trust is controlled by Providence’s chief financial officer, Raymond Mathieu. Add to all that a collar on the Lycos-Wired deal set at $43 per share, which was set when the stock traded in the $30 range, which means the common shareholders will not benefit from the hike in the stock price, but the Bs and Cs get a fixedpercentage regardless of the price, and you have a nice set of lawsuits brewing. On another bad day for technology stocks generally, Lycos closed down $4.625 or 5.0% at $87.375, USA Networks fell $2.50, or 6.6% at $35.625 and CMGI was off $1.0625 at $97.9375. To put that in some sort of perspective, on the day the deal was announced, February 9, Lycos closed down $33 at Lycos shares tumbled $33 at $94.25, while USA Networks rose $3.69 to $41.625.
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