Internet search engine Lycos today announced plans to acquire Wired Digital in an attempt to strengthen its position as one of the most-visited Internet sites.
Lycos will acquire Wired Digital's outstanding capital stock for about $83 million in Lycos stock, plus an additional amount of shares equal to any Wired cash outstanding as of the closing date. Lycos will also assume Wired Digital's stock option plan.
The company's stock, which has traded as high as 53.63 and as low as 9.81 during the past 52 weeks, closed down 1.81 points or 5.68 percent at 30.13.
"It's a good deal both strategically and financially," said Andrea Williams, an analyst at Volpe Brown Whelan. "In the near term, we expect it will be dilutive, but it should not delay the timing of profitability, which we are looking for in Q1, 2000."
The acquisition is scheduled to close by the end of the calendar year and is subject to Wired shareholder approval. "We are looking for $8 million in incremental revenues for fiscal 1999 projection and probably $30 to $35 million for fiscal 2000," Williams said.
The jump from $8 million to about $35 million, however, is misleading. "You have to keep in mind that this is a purchase transaction and that Lycos is acquiring the company halfway through its fiscal year," Williams said. "They are only recognizing half the revenue that Wired Digital should generate."
Wired Digital provides several Web-based products and services, including the search engine HotBot, and the news sites HotWired and Wired News. These sites and services attract nearly 5 million unique visitors a month, according to Relevant Knowledge.
"The acquisition of the industry-defining Wired Digital further fortifies our position as a premier media company," Lycos president and CEO Bob Davis said in a statement. "[Wired Digital's] high-profile brands and added reach elevate the Lycos multibrand network strategy to a new level."
"Joining forces with Lycos gives our products an incredible opportunity to play on an even larger stage," Beth Vanderslice, president of Wired Digital, said in a statement. "By moving Wired Digital into the Lycos network, we'll be reaching a larger audience with an expanded array of quality content and services. And together, this positions us to move into the No. 1 spot on the Web."
In 1996, Wired failed twice at an initial public offering, each time citing poor market conditions and instead resorting to raising funds from institutional investors. It also began a slow attrition of its workforce, cutting jobs from its money-losing units. Sites such as HotWired and Wired News expanded their content while lifestyle sites like Rough Guide Travel were phased out.
Wired Ventures was seeing its empire dwindle after it sold its flagship Wired magazine to Advance Magazine Publications' Condé Nast Publications unit for $75 million. Wired magazine, which was launched in 1993 and founded by Louis Rossetto and Jane Metcalfe, was a pioneer in covering the Internet and digital culture.
Lycos is hoping to reach not just a larger number of users, but a broader audience through its acquisition of Wired Digital. Lycos said that HotBot attracts a tech-savvy Web veteran while Lycos tends to reach a more mainstream audience.