Striking a complex, mega-million dollar deal with Microsoft Corp., Barry Diller's USA Networks Inc. will acquire a controlling interest in travel site Expedia as part of the launch of a Travel Group that will include a new cable TV channel.

USA Networks also is acquiring National Leisure Group Inc. (NLG), a provider of private label online cruise and vacation packages that are resold by other firms such as banks and credit card companies. Terms of that deal were not disclosed.

Upon completion of the proposed transactions, USA Networks said it would generate approximately $4 billion in gross annual travel bookings, "becoming the new leader in interactive travel."

Expedia shares plunged $5.84 this morning to $42.86 in mid-morning trading after the announcement. USA shares were up $1.09 to $26.35.

USA Networks said it will acquire all of Microsoft's 33.7 million shares and warrants in Expedia as it buys up to 37.5 million shares, or approximately 75 percent of the currently outstanding shares. Published reports estimated the value of the Expedia deal at $1.5 billion, or roughly $40 a share.

"For some time we have believed travel to be a key building block in offering goods and services in interactive formats," said Diller, chairman and CEO of USA Networks. "Together with the National Leisure Group and its ... array of travel packages, and the development of a broad-based commerce travel channel, I can't think of a better knitting together of the convergence of entertainment, information and direct selling." said Diller, Chairman and CEO, USA.

Diller will become chairman of Expedia. Richard Barton will continue in his role as president and CEO of the travel site.

The new Travel Group will also include USA's interest in the Hotel Reservations Network. The new USA Travel Channel will be a brand new cable television program service that will market a full range of travel products.

USA Networks said that the addition of Expedia and NLG will expand its estimated share of retail transactions conducted over the Internet and via television in the United States from 5 percent to approximately 9 percent in 2001.

Meanwhile, Expedia said it expects to report income before non-cash items of $12 million to $14 million, or 24 to 29 cents per basic share and 20 to 23 cents per diluted share, for its fiscal fourth quarter, substantially above earlier guidance and analyst estimates. Still, on a GAAP basis, the company expects the net loss to be $5.5 million to $7.5 million, or 11 to 15 cents per basic share.

Expedia said revenue for its fourth quarter, ended June 30, more than doubled over the year-earlier period and rose approximately 37 percent over the third quarter. Gross bookings rose to $802 million, up 78 percent year-over-year and up 19 percent from the third quarter.

Prior to its IPO in 1999, Expedia was a wholly owned subsidiary of Microsoft. And today, in a separate contract, Expedia and Microsoft said they have have extended the term of Expedia's MSN distribution agreement.

Under the terms of the agreement, Expedia shareholders will have the option to elect to exchange in a tax-free merger transaction each Expedia share for $17.50 in USA Networks common stock (subject to a collar between $23 and $31 per USA share), and between 0.3873 and 0.4524 of a 7-year warrant to acquire shares of USA at an exercise price of $35.10, as well as warrants for preferred stock.

New York City-based USA Networks includes the USA Network, the Sci Fi Channel, TRIO, NWI, Crime, Studios USA (TV programming) and USA Films; and USA Interactive's Home Shopping Network, HSN International, HSN Interactive, Ticketmaster, Hotel Reservations Network, Electronic Commerce Solutions, Styleclick and Precision Response Corp.