Lycos acquired by USA Networks

Mr Barry Diller, the media mogul who runs the Home Shopping Network, has snapped up Lycos, one of the leading internet companies, to create a powerful e-commerce group.

The deal is structured as a merger of equals, offering little premium to Lycos shareholders. However, in effect, it is a take-over of Lycos by USA Networks, Mr Diller's company.

USA Networks will end up owning 61.5 per cent of the new group and controlling 90 per cent of the votes.

The move prompted a 20 per cent drop in Lycos shares to $101 5/16. The stock had risen in recent weeks on hopes a large media company would pay a high price for the group, as Lycos was the last remaining internet search business thought susceptible to a take-over. In contrast, USA Networks' shares rose 11 per cent to $42 1/8.

The implication that sky-high valuations attached to internet companies might not be realised helped spark a reverse in the Nasdaq composite index, which is heavily weighted to technology stocks. By early afternoon it was down 54.46, or 2.3 per cent, at 2,350.46.

The deal creates a new company, USA/Lycos, by combining three different operations - the Home Shopping Network, Lycos and Ticketmaster Online-Citysearch. Mr Diller will be chairman. Robert Davis, Lycos chief executive of Lycos, will be chief executive.

Lycos commands one of the largest audiences on the internet through a range of popular Internet sites, including two search engines. The company also recently moved into online retailing.

The group will be worth about $20 billion, with 30 per cent going to Lycos shareholders and 8.5 per cent going to Ticketmaster shareholders, including USA Networks.