By Siobhan Kennedy
In a move that will create one of the largest combined TV and internet companies, USA Networks Inc and its subsidiary Ticketmaster On-line-Citysearch (TMCS) yesterday announced plans to merge USA’s e-commerce and internet assets with the number three search engine and portal company Lycos Inc in a complex stock swap valued at around $22bn. Under the agreements, TMCS and Lycos will merge and USA will contribute its Home Shopping Network (HSN), Ticketmaster (the parent company of TMCS) and Internet Shopping Network to the venture. The new company will be renamed USA/Lycos Interactive Networks Inc and will have a combined annual revenues of $1.5bn, based on 1998 sales figures. Lycos shareholders will get one share of USA/Lycos for each share of Lycos they own. Ticketmaster-Citysearch shareholders will receive .4644 share of USA/Lycos stock. When the deal closes – which the companies said should happen in the second quarter – USA Networks will own 61.5% of the new entity, Lycos shareholders will own 30% and TMCS shareholders other than USA Networks (which owns 60% of that company) will own 8.5%. On top of that, if the market capitalization of USA/Lycos tops $45bn, Lycos shareholders can boost their ownership by an extra 5%, to 35%, and TMCS shareholders can up theirs 0.15%, to 8.6%. Lycos shareholders are effectively receiving a premium on the deal by paying $6bn in market cap for a 30% stake in a $22bn company (worth $6.6bn). But since the all of the assets of the newly-created company aren’t independently traded, the $22bn valuation is debatable. The newly-merged company will advertise its web services on USA Networks’ shows and Lycos web sites will include advertisements for the network’s programs. Under the deal, Barry Diller, chairman and CEO of USA Networks will become the chairman of USA/Lycos while Robert Davis, president and CEO of Lycos, will become president and CEO of the new company and will join its board of directors. Also in the management reshuffle, Ted Philip, CFO of Lycos, becomes CFO of the new company and will also join the board of directors. Charles Conn will remain CEO of TMCS and is expected to take on additional senior management responsibilities within the new company.
The portals consolidate
Speaking during a press and analyst teleconference yesterday, Robert Davis, president and CEO of USA/Lycos said the deal gives Lycos the opportunity to get very big, very fast and the opportunity to create scale. He added: It’s the get big, quick philosophy. The future of Lycos, the fourth-most visited web site on the internet, has been the subject of much rumor and speculation recently. That’s hardly surprising in the wake of the mergers of AOL and Netscape (the first and sixth most visited, respectively), and Yahoo and GeoCities (sites number three and five). Most similar to the Lycos/USA deal, however, is the acquisition of Lycos rival Excite Inc (the seventh most popular site) by cable company @Home. Right up until last week, Lycos was rumored to be in talks to sell a stake of its business to NBC in return for on-air advertising, but Davis said that the company decided not to go for that deal because it didn’t offer Lycos any more than a promotional opportunity. It only gave us one asset, promotion, that was all that a traditional media company could bring to the table, he told the press and analysts. Here, we get promotion and significant revenue, we’ve built a meaningful business. And we could buy, in a year or so’s time, more promotion than anyone else it using to build its brand. As soon as it opens for business, the companies said USA/Lycos will have the immediate capacity to reach 70 million television homes, take more than one million transactional phone calls and ship more than 200,000 units each day. On the net, it will reach approximately 30 million people through its collection of four of the top 20 web sites including Lycos, Tripod, Hotbot and Angelfire, they added.