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Lycos/USA Networks merger collapses

Concerted effort from key investors brings deal to an end

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Update A tremor of unease that in turn triggered an avalanche of investor dissatisfaction appears to lie at the heart of the failed merger between the diversified media company USA Networks and the Web portal Lycos, as revealed earlier today by The Register. Both companies appeared to have underestimated the reaction of Lycos investors who were angry that they wouldn't be getting a hefty premium from the deal as has been the case in other high-profile Internet mergers. But sources close to the deal told The Register the deal had now been thrown in the bin. What's more, Lycos investors believed that the deal favoured USA Networks shareholders which further undermined their confidence. As a result, they began to vote with their feet almost as soon as the deal was announced forcing shares in Lycos to plummet $33 on Tuesday. Shares lost a further $7 on Wednesday but rebounded yesterday by $16 to close at $103.25. And it appears that shaky investor confidence soon gave CMGI, the venture capital firm that owns 20 per cent of Lycos, a severe case of the jitters. Yesterday, the company is reported to have said that it wouldn't vote for the deal if Lycos' stock price didn't recover from the 31 per cent drop it suffered immediately after the planned deal was announced. In an attempt to steady situation and at the request of Nasdaq market officials CMGI issued a statement saying it was "generally supportive of the Lycos/USA Networks transaction as previously reported, but reserves the right to reassess its position as developments unfold." Despite this lukewarm response few people thought it would lead to the deal being scrapped. Early this morning reports from the US quoted Lycos chief executive Robert Davis trying to talk up the deal after meeting with key investors yesterday. He said that support for the deal was gaining momentum among investor and that any initial nervousness was understandable due to the complexity of the deal. Neither company has released an official statement regarding the collapse of the deal. ®

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