Lycos was pushed around by investors for a second day Wednesday amid lingering disappointment over the company's merger with USA Networks. The relatively low premium paid to Lycos shareholders sent a chill through other Internet stocks. Traders shuddered to think what might happen to their portfolios if Net outfits actually were valued like other firms.
The broader market ended mixed after flitting in and out of positive territory throughout the day. Bargain hunters were busily combing through the rubble from Tuesday's sell-off, but sentiment remained jittery, and it was apparent that volatility is still the order of the day.
The Dow Jones Industrial Average rose 44.28 points to close at 9177.31, while the Nasdaq Composite Index was 1.28 lower at 2309.51. The S&P 500 gained 7.41 to 1223.55.
Lycos (LCOS) dropped US$7 to $87.25 after plunging 26 percent a day earlier. While no one is arguing with the portal's position that its tie-up with USA Networks (USAI) makes for a strong e-commerce combo, there's deep disenchantment with the terms of the deal. Investors are astonished that Lycos shareholders will receive only a minimal premium as part of the acquisition, and that Lycos, which had stressed a yearning to breathe free, will settle for a minority partnership in the new venture.
Wall Street made its feelings painfully clear. Lycos' stock was downgraded by Credit Suisse First Boston, BT Alex. Brown, CIBC Oppenheimer, and Volpe Brown Whelan.
"People were in the stock for a large take-out," said Scott Appleby, an analyst with ABN AMRO. "Lycos is a company whose stock has doubled in the last couple of months. It was a presumption that the stock would be taken over with a premium."
Traders' bruised feelings weren't helped by a report in The Wall Street Journal that Lycos' two top execs, CEO Robert Davis and Chief Financial Officer Edward Philip, filed with regulators to sell off nearly $12 million worth of shares last month, while the stock was soaring on deal speculation.
At a technology symposium, both men insisted that the merger with USA and its Home Shopping Network had been misunderstood by the market. The combined company will have "all of the excitement of the Internet combined with substantial earnings," Davis said. "This will be seen as a defining moment."
He has taken umbrage at suggestions that the new USA/Lycos Interactive Networks should be valued more as a traditional media concern than as a hot-to-trot Internet play. ABN AMRO's Appleby figures the valuation probably will settle somewhere in the middle.
"USA is going to look more and more like the media company of the future, with heavy investment in the Internet," he said. Moreover, like many observers, Appleby has plenty of admiration for the instincts of USA's head honcho, Barry Diller.
"I spoke to him two years ago, before Yahoo started making its run," Appleby said. "Even then he got it. He knew the Internet." Still, USA's stock was down $2.38 at $39.25. (Fine print: Lycos is now in the process of acquiring Wired News' parent company.)
In a nice bit of irony, meanwhile, Shop At Home (SATH), the third-largest home-shopping retailer, plunged 32 percent to $13.56 after disappointing investors by failing to link up with an established portal. Although Shop At Home said it will develop an online auction service -- who isn't these days? -- analysts had been looking for the company to expand its TV audience with the reach of an Internet search engine.
Facing an image problem of its own, Amazon.com (AMZN) moved quickly to retreat from plans to whore out its site by allowing publishers to pay for featured recommendations. Now Amazon will make sure customers know that a glowing blurb is in fact a paid advertisement. Nevertheless, the company's stock was caught in the vortex swallowing most Net shares, and it was down $2.56 at $97.44.
And here's one you could see coming a mile off: ETrade Group (EGRP) is being sued by a customer for its system having crashed four times last week. "As a result of this virtual lockout," the suit charges, "class members lost potentially millions of dollars."
Or, considering the market's recent turbulence, they ended up saving potentially millions of dollars. The suit doesn't take that into account, though. ETrade advanced $2.56 to $42.75.
Network Solutions (NSOL) rose $5.88 to $153.88 after reporting fourth-quarter profit of 22 cents a share, a couple of pennies higher than estimates. This may not last, though, now that a government panel has issued guidelines for other companies to offer Internet-domain registrations.
General Instrument (GIC) gained $1.69 to $33.31 after posting quarterly income of 26 cents a share, topping expectations by 3 cents. The leading US maker of cable-TV set-top boxes said sales are increasing as the number of cable subscribers increases.
Microsoft (MSFT) was up 56 cents at $160.63 as the company's chief financial officer, Greg Maffei, said Redmond is stewing on a new batch of mergers and partnerships with Web-related outfits. He noted that the current drop in prices for most Net shares could hasten such moves.
Elsewhere in tech, Dell Computer (DELL) slipped 81 cents to $97, while International Business Machines (IBM) was $6.13 higher at $168.88. Intel (INTC) gained $3.50 to $128.81, and Cisco Systems (CSCO) was up $2.63 at $98.56.
AMR (AMR), parent of American Airlines, shook off the effects of a sick-out by disgruntled pilots. As more than a third of its flights were canceled, a federal judge ordered an end to the protest. The pilots are unhappy with the carrier's acquisition of Reno Air, and how Reno's pilots will be integrated with existing rank and file. AMR rose 50 cents to $56.
Lastly, Bestfoods (BFO) climbed $1.56 to $48.50 as the mayo-maker hit estimates with fourth-quarter earnings of 64 cents a share, excluding charges and all that other accounting stuff. And here's something you probably didn't know: Bestfoods is a component of the PlanetClick 500 stock index of "companies with the top user-rated Web sites in the PlanetClick universe."
While not all investors will regard possessing a decent Web site as a sign of a firm's fiscal vitality, where else can a well-informed person turn to discover Bestfoods' position on mad cow disease?
