USA Lycos Interactive Network will combine the Web company's search directory and community sites with three USA Networks commercial properties, including the Home Shopping Network and recently merged Ticketmaster Online-CitySearch.
The new company will be worth about $18 billion. Diller will become chairman of the new company. Lycos chief executive Robert Davis will become president and chief executive.
Upon the closing of the transaction, USA Networks will own 61.5 percent, Lycos shareholders will own 30 percent, and Ticketmaster Online-CitySearch shareholders other than USA Networks will own 8.5 percent of the USA/Lycos equity. TicketMaster Online-CitySearch shareholders, including USA Network, will receive in the aggregate about 19 percent of the USA/Lycos equity.
In addition, Lycos shareholders can increase their ownership another 5 percent, to a total of 35 percent, and TicketMaster Online-CitySearch public shareholders can increase their ownership by 0.15 percent, to a total of 8.65 percent, should the initial USA/Lycos shares achieve an average market value of $45 billion over specified periods.
USA/Lycos will have a significant relationship with USA Networks, which will bring promotional opportunities across USA's broadcasting and cable assets, which reach 90 percent of U.S. TV-viewing households and include the USA Network, the Sci-Fi Channel, Studios USA, and USA Broadcasting. USA Networks also will leverage the Lycos Network's traffic to introduce what it says is the fastest-growing Web audience to all its properties, the company said.
In addition, USA/Lycos advertisers and commerce allies will benefit from access to TV, online and Ticketmaster outlets, increasing advertising, commerce, and promotional opportunities, the company said.
"We believed we needed a national portal if we were to continue to grow," Diller said at a press conference today in New York. "We needed to have an aggregation of eyeballs, and if we had the aggregation, we could lay down the path to e-commerce."
Diller, a broadcast and studio veteran most recently known for his popular home shopping network QVC, has been on a buying spree himself lately with Internet purchases. A portal will help stitch together his portfolio of new media properties and create an e-commerce powerhouse.
Diller said that, with the Home Shopping Network and QVC, the company has the electronic retailing and merchandising expertise needed to succeed.
"Along with the national portal possibilities that come with Lycos and Ticketmaster, there is a real benefit over a period of time to develop toward a formidable e-commerce presense," he added.
"I had dialogue with a pretty wide spectrum of different compapies," said Davis, also at the press conference in New York. "Traditional media companies provided to Lycos and its shareholders one and only one asset: it provided promotion."
Davis said the negotiations resulted in offers of on-air promotions aimed at driving people to Lycos, presumably leading to more advertising revenues.
"But when the day is said and done, that was all that traditional media brought to the table," he added.
However Davis said that, almost overnight, the deal with USA creates a company with the infrastructure to handling e-commerce transactions as well as shipping and distribution.
"This marriage is going to be part and parcel of selling goods directly to consumers," said Patrick Keane, an analyst at Jupiter Communications. "If you look at the properties USA has, the major component to the deal smells like commerce."
In August, USA Networks' Ticketmaster merged with Net directory CitySearch, as the cable TV studio agreed to invest $50 million to fund CitySearch's expansion. As a result, CitySearch canceled its initial public offering, and USA Networks holds more than 60 percent of the merged company.
Just yesterday, USA Networks said it agreed to invest $10 million in Free-PC, an Internet start-up that offers free PCs to qualified Web surfers who agree to view unlimited ads. Free-PC and CitySearch were incubated by idealab, founded in 1996 by Internet entrepreneur Bill Gross.
Lycos recently has been in play as an investment or acquisition target, the source of especially intense speculation since @Home's recent buyout of Excite for $6.7 billion. The Waltham, Massachusetts, company had said it was looking for an investor, but CEO Davis maintained that Lycos preferred to remain independent and would consider selling only a minority stake.
USA Networks broadcasts television programming produced by CNET: The Computer Network, publisher of News.com.
News.com's Jeff Pelline contributed to this report.