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Alternate Lycos suitors on hold

Despite efforts to line up competing buyout offers for Lycos, no one is expected to step forward until after shareholders vote on the proposed USA Networks' acquisition.

Despite efforts by a major shareholder to line up competing buyout offers for Lycos, no one is expected to step forward until after Lycos shareholders vote on the proposed USA Networks' acquisition offer.

That's because potential suitors do not want to pay a lot more for a buyout by triggering a termination agreement between USA Networks and Lycos, according to a source familiar with the deal.

Under the termination agreement, USA Networks would be granted an option to buy up to a 17.51 percent stake in Lycos at $127.14 per share, according to a Securities and Exchange Commission filing.

USA Networks could exercise its option under certain conditions, which range from Lycos entering into an acquisition agreement with another prospective buyer to the portal's board of directors recommending another offer, or their declining to put the Diller deal forward to shareholders.

And, in a move that is less common, the option could be exercised if another buyer makes a "bona fide proposal to [Lycos] or its stockholders by public announcement or written communication that is or becomes the subject of public disclosure to engage in an acquisition transaction," the filing states.

Options can serve as a greater barrier to competing bidders than a flat break-up fee, said one investment banker.

Break-up fees, which have the same purpose of keeping the original parties together and dissuading competitive bidders, typically represent 3 to 4 percent of the proposed sales price, said the banker.

But with options, the pay-out could be much higher, depending on the option price and size of the stake in the target company, he said.

As a result, Morgan Stanley to explore alternatives to the USA Networks proposition.

CMGI has also confirmed interest from third parties.

"Several interested parties have stepped forward, and we are going to take our time to figure out what we believe is the best interest for the Lycos shareholders," said Peter Mills, managing partner of CMGI @Ventures.

Mills added that outright acquiring Lycos, or joining other parties in a combined effort to purchase Lycos, are within CMGI's realm of options.

"There's no need to rush here," he said.

A Lycos spokeswoman declined to comment on the terms of the termination agreement, since the company's quiet period forbids it to discuss any details of the proposed merger.

For now, it's business as usual at Lycos. Vice president of finance Thomas Guilfoile today said the company would file its proxy statement with the SEC about its merger with USA Networks within a week. Guilfoile, who spoke today at PaineWebber's Mass Market Internet Conference, would not comment on the deal until the proxy was filed to regulators.