In the scheme of things, it was a small deal, but it was perhaps a symbolic gesture that Barry Diller is still playing his own brand of Internet M & A in the wake of the gigantic America Online/Time Warner deal.

On Tuesday, Mr. Diller's USA Networks agreed to exchange $40 million in cash, $10 million in advertising, and the assets of USA Networks's Internet Shopping Network in exchange for a 75 percent stake in Styleclick.com, which operates a network of fashion-related sites. Several sources, including Bloomberg, put the overall value of the deal at $500 million.

The deal represents Mr. Diller's first foray into the Internet since his effort to merge with Lycos fell through.

GROWING, GROWING...

The combination will create a new company named Styleclick, Inc., controlled by USA. The deal increases Mr. Diller's involvement in Internet commerce and reinforces the trend toward combining Internet companies with established media firms. USA also owns a majority stake in Ticketmaster Online-Citysearch.

"Essentially, USA is injecting its e-commerce assets into a public company, and all of a sudden it's an Internet vehicle, so it's pretty clever," says Richard Read, a media analyst with Credit Lyonnais.

Mr. Diller has been patiently blending USA Networks -- which is composed of several cable channels, including the retail operations of the Home Shopping Network -- with Internet companies. The general idea is that he can use the branding power of his media properties and the electronic-commerce infrastructure of the Home Shopping Network to strengthen the position of Internet acquisitions.

Mr. Read says the deal is another demonstration of the forces bringing Internet companies and media companies together. Established media companies need growth and Internet real estate. The dot-coms need the branding power and real assets of their established media brethren.

In addition to its cash and advertising swap for Styleclick.com's equity, USA will receive stock warrants that give it the right to buy more Styleclick.com stock in the future, thus guaranteeing a controlling interest.

In late afternoon trading on Tuesday, Styleclick.com shares had lost $3.25 (18.6 percent) to close at $14.25, and USA shares climbed $3.44 (6.8 percent) to $53.94.

THERE'S YOUR VALUE

The deal once again set off questions about Internet company valuations, as shares of Styleclick.com lost value and USA Networks shares rose on news of the deal. Last year, Mr. Diller, who controls USA Networks, set off a shareholder controversy when he proposed the Internet's first big media deal, in which USA Networks was to be combined with Lycos in a complicated stock deal that eventually was blocked by Lycos shareholders. The deal was criticized as complicated financial engineering whose true value was difficult to discern, but Mr. Diller's actions correctly presaged the trend toward media companies merging with Internet companies, as demonstrated by the AOL/Time Warner merger.

Some sources, including Bloomberg, had put the value of the new combination in the $500 million range. This counts the $40 million in cash, $10 million in media, and the value of USA's Internet Shopping Network, which includes First Auction and First Jewelry.

"In broad terms, the value of the assets is $50 million, hard assets, [and] First Jewelry, and you try to figure out what the value is for the remaining assets," says Vinton Vickers, managing director at ING Barings. But Mr. Vickers notes that what's more important for the shareholders is the longer-term viability of the new company, and he thinks the combination of USA and Stlyleclick.com is a good one.

"If you look at this longer-term, both entities will be much better positioned going forward," says Mr. Vickers. "You combine USAI's merchandise experience and their infrastructure with Styleclick's technology, and you have a very well-positioned company. The added benefits on USA's side: you get public currency."

Indeed, the public currency of the new company, in the form of Styleclick.com stock, would be used to "aggressively" extend Internet holdings by making acquisitions, said company officials in a conference call.

Analysts say shareholders would probably weigh such issues in determining whether to accept the deal.

"The best model for all shareholders, given the valuation discrepancies [between Internet companies and media companies], is for the established media to break out its e-commerce stuff and make acquisitions," says Mr. Read. "The shareholders are trading into the growth of the Internet for the earnings stability of the media company. But most Internet shareholders don't like that. That's what happened with the Lycos deal."

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