Take the Money and Run

When asked how things are shaking between Terra Networks and Lycos , Terra execs said the
billion-dollar courtship is still on. Now that the honeymoon celebration
has subsided, many industry analysts are wondering aloud whether both
companies will actually follow through with the merger deal.

CMGI’s David Wetherell is still lounging
poolside waiting to see how investors punish or reward both stocks. With a
portly 17% stake in the Web portal he founded half a decade ago, his firm
stands to cash in big with the planned marriage. Pardon me while I roll my
eyes and repeat that this deal is the best we’re going to see for a
second-tier portal who’s frothiest days with investors are well behind it.

But Wetherell doesn’t need the free advice. He’s nobody’s fool. When the
ex-Poker buff single-handedly put the USA Networks /Lycos merger on ice early last year it was a shrewd and
calculated risk that there’d be something better just around the bend. The
gamble paid off, and the CMGI skipper isn’t looking to pass on this one.

If both Terra and Lycos’ stock prices get another substantial haircut, we
could see some foot-dragging and hedging on the part of CMGI. But in the
current market environment, expect the incubator to be flexible. The reason
is pretty simple – CMGI’s own well-being.

Nobody’s immune from scrutiny when grumpy retail investors are on the
prowl. Many traders’ portfolios are swimming in red, and most armchair
investors are looking to make the freeloaders walk the plank. If you’re a
Net company on the bubble, now’s the time to put your best foot forward.
That means showing profits. Green stuff, and lots of it.

CMGI has long enjoyed an enviable pseudo-accountability when it comes to
its quarterly earnings. Blindfolded analysts covering the company
constantly play a game of pin the consensus estimate on the incubator each
and every quarter. It’s not uncommon for the company to pull an eleventh
hour stock sale in a portfolio Web start-up to boost numbers ahead of the
report date, or miss the broadside of a barn with no apparent explanation.

The offhanded response is usually the same. “We’re not a conventional
company with a predictable revenue stream. As a venture capital firm,
analyzing our quarterly results is at best a stab in the dark.” But more
recent developments show a more mature CMGI sticking to Wall Street’s
script. The easiest way to ensure that outcome is to periodically liquidate
some of its investment holdings.

A start-up in CMGI’s @Ventures investment portfolio, person-to-person
auction site Half.com recently grabbed
the brass ring, accepting a $350 million stock-swap payday from eBay
. The sale means a handsome windfall for the venture
capital firm.

Now that it’s easier to suck a tennis ball through a beverage straw than
fit through the IPO pipeline, acquisitions are once again all the rage as
the exit strategy of choice. With CMGI’s share price nearly 70% off its
52-week high and the AltaVista IPO
stalled for the umpteenth time, there’s no bigger windfall on the horizon
than the Lycos/Terra merger. It’s a win-win for all parties involved, and
it’s a deal that isn’t likely to come around again.

Any questions or comments, love letters or hate mail? As always, feel free
to forward them to [email protected].

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