Wetherell's departure is the first concrete sign that CMGI will lobby against the USA-Lycos merger, which lumps USA's Home Shopping Network with Lycos and Ticketmaster-Citysearch.
Lycos shares were up 17 percent to 98 13/16. Investors took Wetherell's move to mean higher bids would be forthcoming, but is that really the case? "After further consideration, it is my opinion that the terms of the USA/Lycos transaction are inadequate for Lycos shareholders," Wetherell said in a statement. "As such, I am resigning from the Lycos Board in order to be free to explore the best options available to Lycos shareholders, including the possibility of Lycos remaining independent."
Lycos said it is still behind the USA deal.
Wetherell's resignation from the board is sure to irk USA chief Barry Diller, who last week touted the USA-Lycos synergy and said the current Internet math won't hold up in the long-term. Diller said "some day soon real businesses with real metrics will have to be built." Although investors cheered Wetherell's quest for new buyers, it doesn't mean that any other company will top USA's bid, which by most counts is more than fair.
Analysts noted that Lycos talked to a lot of other potential partners before going with USA. "The question no one is asking is, 'Where are all these other bidders?'" said Lawrence York, portfolio manager for the WWW Internet Fund, which holds shares of Lycos, CMGI, Ticketmaster-Citysearch and USA Networks. "If Lycos was undervalued why hasn't someone stepped up yet?"
York, who said he will vote for the USA-Lycos deal, said Lycos is already getting a hefty premium. USA paid for Lycos at the height of takeover talk. "Diller doesn't have to renegotiate this," said York. "By most measures Lycos was overvalued to begin with." York's view is shared by Hambrecht & Quist analyst Paul Noglows, who was one of the few sell-side analysts to voice support for the combination.
Despite the talk about combining HSN with Lycos pure Internet assets, the real beef about the USA-Lycos merger is the premium. "This is a big positive for shareholders," said Brian Hill, an analyst with Adams Harkness. "Wetherell will now seek better deals." Diller has already indicated that the USA-Lycos pact won't be renegotiated. "I don't think USA is the right company to merge with Lycos," said Hill. "It is still not an Internet company with less than a third of sales coming from the Internet."
Hill, however, admitted the argument that USA-Lycos won't be a pure Net play is just a smokescreen. "They don't want to sound greedy so that's the cloud cover, they aren't getting the premium they want," said Hill. Dalton Chandler, an analyst at Needham & Co., is surprised by the backlash. "I don't understand how the deal looked good enough two months ago, but now can sink on the issue of a premium," said Chandler.
Despite the split on Wall Street, few Lycos watchers think the USA-Lycos deal is fundamentally flawed.
With the deal, Lycos becomes a solid Internet commerce, gets traditional media marketing and HSN's back-end distribution, which Amazon.com Inc. is currently spending billions on. Hill called the combination "fantastic," but added that it won't be a pure Internet play and that's what upsets investors. "If the merger passes, we will look back on this 12 months from now and say the companies did the right thing," said Chandler.
If Wetherell's lobbying campaign is successful, shareholders could shoot the deal down. But CMGI only owns about 20 percent of Lycos so it will need help.
Judging from York's reaction, there may be shareholders that don't buy into CMGI's stance and are taking a longer view. "I'd like to see a quality poll to see where shareholders stand," said York. "Everybody is taking a short-term view." Other analysts said CMGI could rally support against the USA-Lycos merger. "They can get a lot of people on the bandwagon," said Hill. The jury, however, is still out. USA-Lycos officials will give more details on combining the companies in about three weeks. Wall Street could wind up supporting the deal, but chances look slim.
"At this point, I'm not sure what else management can say," said Chandler.