Diller close to stake in Lycos

Barry Diller's USA Networks is close to making a major investment in Lycos, sources said.

Talks between Lycos and USA Networks continued tonight, and a deal for an investment in Lycos could be concluded as soon as tomorrow, the sources said.

Diller has been on an Internet shopping spree lately, and a portal would help stitch together his portfolio of new media properties.

USA Networks could not be reached for comment. But sources said the Lycos board has met to consider Diller's proposal, along with others. Microsoft and Yahoo also have been mentioned as possible bidders in the Lycos sweepstakes, the sources said.

NBC, another possible suitor, has dropped out of the running.

"It makes sense," one industry executive said. "[Diller] could wrap in his other properties" with Lycos.

In recent months, Diller has been building an Internet empire. In August, USA Networks' Ticketmaster merged with CitySearch, the Internet directory. USA Networks agreed to invest $50 million to fund CitySearch's expansion. As a result, CitySearch cancelled its initial public offering. USA Networks now holds more than 60 percent of the merged company.

Just today, USA Networks said it agreed to invest $10 million in Free-PC, an Internet start-up. The company offers free PCs to qualified users in exchange for their agreeing to view unlimited ads. Both Free-PC and CitySearch were incubated by idealab, founded in 1996 by Internet entrepreneur Bill Gross.

"I can't comment," said CitySearch CEO Charles Conn, reached tonight.

Diller is best known for his popular home shopping network QVC. But he also has been bullish about e-commerce.

Lycos recently has been in play as an investment or acquisition target, fueled by @Home's recent buyout of Excite for a record $6.7 billion. Lycos has said it is looking for an investor, but chief executive Robert Davis has maintained the company prefers to remain independent and would consider selling only a minority stake.

Microsoft has been struggling to make MSN a bigger force in the Internet industry, and buying Lycos would boost its traffic. Although the software giant has enough cash to buy Lycos outright or make an investment, it could face further antitrust scrutiny if it swallows up a large player in the Net portal market.

News.com's Jeff Pelline contributed to this report.