After Deal Dies, Diller Seeks Portal

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After Lycos Inc. left Barry Diller at the altar last week,
industry observers pondered the USA Networks Inc. chairman's next move.

In the aftermath of the scotching of USA's merger with
Internet search engine Lycos, it appeared likely that Diller would not back away anytime
soon from his objective to beef up his company's Internet presence. Analysts think he
still has his eye on the electronic-commerce prize.

If not Lycos, then what? It has been widely speculated that
Diller will take a wait-and-see approach regarding Lycos' share price. If it
declines, he could attempt a revised bid.

He could also set his sights on new prey. One media
analyst, who spoke on the condition of anonymity, speculated that Diller could aim for
"mid-cap portals" and build from there.

Diller, through a spokeswoman, declined to comment. But
that didn't stop others from weighing in.

"He definitely wants a significant Internet
presence," said Mark Riely, president of Media Group Research, based in New York.
"His clear objective was to enhance the positioning of HSN by adding Lycos." HSN
is Home Shopping Network, the USA-owned home shopping service.

Any sense of urgency on Diller's part may be fueled by
the recent moves made by other media firms, including NBC, which followed up last week on
its recent 20 percent equity buy into ValueVision International Inc., a competing home
shopping service.

NBC announced that it was rolling up its Internet assets
with those of XOOM.com, an electronic direct-marketing firm, and Snap, a search engine NBC
partly owns, to spin off a new $4 billion publicly traded unit called NBC Internet, or
NBCi.

"This is a true Internet play," said NBC Cable
president Tom Rogers, who oversees interactive initiatives at the Peacock Network.
"We are showing our commitment to this area by applying the power and momentum from
the equity behind the NBC brand name."

By creating its own Internet stock, NBC is banking on not
running into the same problems Diller did in trying to buy a high-flying Internet company
like Lycos with traditional media stock.

In fact, some sources didn't rule out the possibility
that NBC -- which was an early suitor for Lycos -- could try to capitalize on
Diller's failure by making another play for the portal company.

The unraveling of the Lycos acquisition ultimately came
down to dollars and cents, as Diller was accused of lowballing Lycos shareholders.

Day traders -- who own a majority of Lycos stock, and who
are generally accused by big-picture types of not being able to see the forest for the
trees -- were not sold on Diller's long-term synergy spiel.

Instead, they were fixated on looking for premiums 20
percent to 25 percent above a Lycos share price that had run up significantly on takeover
speculation, analysts said. Lycos' share price plunged after the USA deal was
announced.

Lycos' biggest institutional investor -- CMGI Inc.,
led by chief executive David Wetherell -- also found Diller's bid not rich enough for
its liking. CMGI owns 20 percent of Lycos.

This led to last week's announcement that the parties
had agreed by "mutual consent" to terminate the merger agreement that was signed
Feb. 9. The termination agreement will force Lycos to pay USA $35 million if Lycos cuts a
deal with someone else before July 15.

Most industry observers expect Lycos to eventually be
snatched up. In reaction to last week's breakup, Lycos' stock closed last
Wednesday at $111 -- up 14 percent, but still down from the $127 it was trading at before
news of the USA deal in February.

Last week's events marked the first misstep in
Diller's reign as chairman and CEO of USA, which began in February 1998.

Diller had spent his first year and change getting USA
poised for the Lycos deal. Earlier, he'd acquired Ticketmaster Group and combined it
with online entertainment guide CitySearch Inc., setting the table for the Lycos deal.

The termination agreement, however, does include an
arrangement whereby CitySearch and Ticketmaster Online content will appear on Lycos.

One deal that Diller did get done was back in April, when
USA and Seagram Co. announced an agreement whereby USA will buy October Films, Gramercy
Pictures -- which includes Propaganda Films and Interscope Communications -- and
particular elements of the PolyGram Filmed Entertainment home-video catalog from Seagram.

These properties are being bundled under the banner of USA
Films. Terms of that deal were not disclosed.

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