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CMGI surges as interest in Lycos heats up

Shares of CMGI surge as much as 17 percent after the venture fund says other potential buyers are interested in Lycos.

ANDOVER, Massachusetts--Shares of CMGI, the largest shareholder of No. 3 Internet directory Lycos, surged as much as 17 percent after the venture fund said other potential buyers are interested in Lycos.

CMGI rose 28.63 to 192.63 in trading of 6.75 million, vs. its three-month daily average of 4.1 million. Lycos gained 7.12 to close at 105.75 after reaching 107.38 earlier today.

CMGI managing director Peter Mills told investors at the PaineWebber Internet Conference in New York that other parties were interested in Lycos. He declined to identify the potential bidders.

CMGI hired an investment banker to seek alternatives and other bidders for Lycos, which had agreed in February to be acquired by USA Networks, the media and e-commerce company headed by Barry Diller.

"They have a lot of confidence there's another party that will do a deal with Lycos that'll give shareholders better economics than USA Networks," said Ken Winston, an analyst at Needham & Company, who rates CMGI a "buy." Officials at Lycos and USA Networks declined to comment.

CMGI chief executive David Wetherell last week quit Lycos' board, saying the terms of Lycos' pending acquisition by USA Networks were inadequate. He said USA's proposal values Lycos at $6 billion and is too low relative to other recent Internet-related acquisitions.

CMGI owns an 18.5 percent stake in Lycos. Wetherell said he rallied enough support from other major Lycos shareholders to block the USA acquisition.

Mills told reporters that CMGI isn't seeking a quick resolution before shareholders vote on the combination within the next few months. "There needs to be no rush to judgment," Mills said. "We've got time."

Mills laid out five possible scenarios: shareholders approve the combination, shareholders vote it down, the transaction is "improved and approved," CMGI links with another company to make a bid for Lycos, or a third-party independent of CMGI makes an offer. Mills said CMGI has spoken to other bidders.

Lycos talked with several other companies including Time Warner, CBS, and General Electric's NBC broadcast unit about a possible partnership before it reached an agreement with USA Networks.

In a presentation before investors, Mills said about a dozen private Internet companies CMGI owns stakes in are candidates for initial public offerings in the next two years.

Separately, CMGI will replace Netscape Communications in the Nasdaq-100 Index, effective at the close of trading on March 17. Netscape is being acquired by America Online.

Inclusion in certain stock indexes can increase demand for the shares because many index-based mutual funds automatically invest in stocks that are in the index.

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