Wall Street was getting smacked around again in mid-afternoon trading Tuesday. A chorus of caution has emerged from several leading market analysts, spooking investors and prompting many to flee from any stock with what looks like a high valuation -- and that means tech and Internet shares.
Meanwhile, the Lycos guessing game has come to an end. Its new merger partner is ... the Home Shopping Network?
The Dow Jones Industrial Average fell 70.29 points to 9220.82, and the Nasdaq Composite Index was 50.60 lower at 2354.32. The S&P 500 fell 13.88 to 1229.89.
After Prudential Securities' Ralph Acampora warned that the market could retreat by as much as 10 percent over coming months, he was joined in this downbeat assessment by Merrill Lynch's Richard McCabe and Morgan Stanley Dean Witter's Peter Canelo. Each said stock valuations are just too darn high, and that prices will have to come down before the Street's bull run can resume.
"When the market's high, people are ready to be spooked," said Allan Roness, research director with JW Genesis Capital Markets. "And the market is high. There's a lot of profit-taking."
Profit-taking? That hardly begins to describe the bloodbath for Lycos (LCOS) after it was announced that the portal will be purchased by USA Networks (USAI), which plans to merge the online directory with its Home Shopping Network to create what's hoped to be the e-commerce dynamo of the future. Lycos plunged 21 percent to US$100.94, while USA Networks rose 13 percent to $42.75.
Financial terms of the deal were hard to figure out, but investors clearly thought that Lycos had gotten the short end of the stick. According to reports, Lycos shareholders will receive only about a 2 percent premium over Monday's closing price of $127.25. Moreover, Lycos will own just 30 percent of the new company, dubbed USA/Lycos Interactive Networks, while USA Networks will hold a 61.5 percent stake.
It's probably fair to say as well there was some disappointment that Lycos' bedmate turned out to be the Home Shopping Network. Lycos' stock had soared in recent weeks amid speculation that potential merger partners included the likes of NBC, Time Warner, News Corp., and Bertelsmann. The USA Network, while run by a respected media guy like Barry Diller, might strike some as a second-class country cousin compared to such high-profile outfits.
While a tie-up that includes Lycos, the Home Shopping Network, and TicketMaster Online-CitySearch does hold enormous e-commerce potential, it remains to be seen how other elements of the deal will play out. Among other things, Lycos is now in the process of acquiring Wired News' parent company.
In other Net news, America Online (AOL) said its membership now exceeds 16 million, with the latest million climbing aboard in just the past five weeks. But AOL's stock followed the rest of the market south, sliding $8.44 to $150.56.
Reuters Group (RTRSY) fell $3.88 to $81.50 after reporting a more than 7 percent drop in fourth-quarter pretax profit. The financial news provider also warned that sales are expected to slow this year as emerging markets dig themselves out of their fiscal holes.
News Corp. (NWS) shed 31 cents to $29.13 as Rupert Murdoch placed his oldest son, Lachlan, in charge of the company's US publishing operations. The 27-year-old scion is being groomed to one day replace his old man as head of one of the world's largest media empires.
In tech, Intel (INTC) declined $3.63 to $128.38 after Chief Financial Officer Andy Bryant said more price cuts probably will be forthcoming as the company slugs it out with Advanced Micro Devices (AMD) for dominance of low-end chip sales. For its part, AMD was down 25 cents at $16.88.
