A Game of Red Light, Green Light for Tech Mergers

Plus, what's your take on the next Net takeover target? Cast your vote in our poll.

Author:: David Shabelman
Publish date:: May 10, 1999 10:53 AM EDT

SAN FRANCISCO -- Some investors were looking for a correction in Internet stocks after earnings season, expecting a lack of news to drive the decline. However, the tech sector is dousing those expectations by moving in the other direction after two merger announcements spurred the Nasdaq's early gain.

NBC

, a unit of

General Electric

(GE) - Get Report

, announced its plan to

merge its Internet properties with online community and commerce site

Xoom.com

(XMCM)

. Rumors of this deal swirled

Friday.

CNet's

(CNET) - Get Report

Snap

unit, which is partially owned by NBC, will also be involved in the new entity, called

NBC Internet

Trading in Xoom.com and CNet was suspended early because of the news.

While one merger is forming, another is apparently dissolving.

The Wall Street Journal

reported that

USA Networks

(USAI) - Get Report

will drop its bid for

Lycos

(LCOS)

. Investors have been skeptical of the deal since it was

announced in February.

Lycos was up 9 1/2, or 11%, at 99 in early trading.

CMGI

(CMGI)

, which owns a large stake in Lycos, was up 7 1/8, or 3%, at 228 3/8.

But gains in Lycos could be fleeting. In a research note this morning,

Merrill Lynch

analyst Henry Blodget noted that he expected Lycos to trade up on the news, but it may only be temporary. Blodget wrote that he does not believe another suitor will extend an offer to Lycos at this time, and Lycos does not need a partner. But, he noted, the lack of a partner "may pressure the stock."

One more merger note came from the

San Jose Mercury News

, which reported that

Disney

(DIS) - Get Report

could be close to acquiring the rest of

Infoseek

(SEEK)

, of which it already owns 43%. Infoseek was little changed in early trading.

Compaq Imprint

Does

Ben Rosen

think he's the next

Steve Jobs

The new interim chief executive of

Compaq

(CPQ)

wasted no time putting his imprint on the troubled company's future by paring the PC seller's distributor list from 40 to four in an announcement Monday. In early trading, Compaq was up 15/16, or 3.5%, at 25 11/16.

Rosen, who engineered the ouster of Compaq CEO Eckhard Pfeiffer last month, is moving quickly to shore up the company's outsized distribution model until he finds a CEO replacement. Compaq's four "Distribution Alliance" partners will consist of the world's largest PC distributors,

Ingram Micro

(IM)

Tech Data

(TECD) - Get Report

Merisel

(MSEL)

and

Inacom

(ICO)

The move gives more power to major distributors, but it is a setback to thousands of other distributors who will now have to get their Compaq wares from the Big Four. With this plan, Compaq intends to simplify the way the company moves its inventory, allowing Compaq to deal more directly with customers while simultaneously reducing channel inventory levels. (

Dell

(DELL) - Get Report

, for example, doesn't have a channel because it ships its products directly to customers.) Early last year, Compaq stuffed this channel with too much inventory, forcing Compaq to significantly boost its contra-revenue account. The outsized account balance was one of the

reasons for Compaq's first-quarter downfall.

Expect more moves from Rosen because recruitment for a new CEO often takes at least three months, according to Jim Horton, a communications representative for recruiting firm

SpencerStuart

Heidrick & Struggles

, the lead recruiter on the Compaq CEO search, didn't return calls seeking comment.

-- Eric Moskowitz

Dell Gets Upgrade

Dell was firmer early today after

BT Alex. Brown

upped its rating on the boxmaker to buy from market perform, saying that Dell's expanding product line "will contribute both to near-term growth and incremental margin opportunity." It kept a price target of 50 on the stock. Dell was up 1 1/8, or 3%, at 41 15/16.