Storm clouds ahead for Lycos-Wired deal

The move by Lycos to buy Wired Digital may be threatened by a Wired shareholder dispute over the terms of the deal, a source close to the companies has confirmed.

Problems over the Wired deal's terms could in turn aggravate frustration expressed by some Lycos shareholders over the Internet portal's agreement last week to merge with USA Networks, according to a report in the Boston Herald today. Lycos had struck its deal with Wired last fall, months before the USA merger.

The source also confirmed Wired cofounder Jane Metcalfe's assertion in the Herald that the deal likely will be delayed or possibly even jeopardized because of a dispute among Wired shareholders.

"The only people standing in the way of the deal are the C-investors that are making a rapacious attempt to take more of the proceeds than they should," the source said, referring to the class of shareholders that hold a controlling stake in Wired. These "C" class shareholders include Providence Equity Partners and Tudor Investment, both of which voted in favor of selling Wired to Lycos.

The source added that the "A" class, which includes original employees and shareholders, "will take all legal actions to remedy the maldistribution" of shares by the series C investors, the source said. Reports have said that the "C" class investors would gain most of the windfall. Those terms, first reported by CNET News.com, have upset former employees such as Metcalfe as well as other investors.

"No lawsuits have been filed," Metcalfe told the newspaper. But, she added, "There have been letters back and forth." The source added that the letters were between the "A"-class and "C"-class shareholders.

"We don't anticipate any problems," Lycos spokesman Brian Payea said today. "We are waiting for comments from the SEC."

Payea added that there was no definitive time frame for when final SEC approval would take place.

But the source said that the companies "expect comments now or next week," which "may be delayed because of USA Networks' deal with Lycos."

Lycos agreed to buy Wired for $83 million in stock in October. Lycos has delayed the closing date for the deal, which was to have been completed last year, at least twice, the paper said.

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