Terra Reportedly in Talks to Buy Lycos

SAN FRANCISCO (05/16/2000) - Lycos Inc. stock jumped nearly 13 percent Monday morning on news that the company might be an acquisition target for Terra Networks SA. The two companies are in serious discussions over a proposed stock-swap deal that would value Lycos at $10 billion in stock, according to the Wall Street Journal.

Terra, based in Spain, is Europe's second-largest Internet company in terms of market value. A $10 billion price tag would value Lycos stock at roughly $90 per share, a price far above the company's Friday close price of $54.13. Lycos stock was trading at $60.88 midday Monday.

If the proposed deal were struck, it would mark the first time a U.S. Internet company has been purchased by a European provider. The resulting global Internet portal would give Terra Networks high-quality English-language content, as well as access to Internet-savvy markets beyond Spain and Latin America, where Terra already dominates.

Lycos is the fourth-largest Internet portal in the U.S. The company also has a 43 percent stake in Lycos Europe, with a presence in Germany, France and England. Terra Networks is already among the top-three players in Latin America's Internet market, with a particularly strong position in Brazil, which accounts for half of all Web users in the region. Latin America is currently the fastest-growing region worldwide for Internet hosts, with 500 million Spanish speakers, including those in the U.S. and Spain. There are also some 170 million Portuguese speakers in Brazil. According to research group International Data Corp., Latin America has about 8 million people on the Net and that number should soar to nearly 30 million by 2003. Although Lycos has launched operations in many Latin American countries early this year, its presence has gone largely unnoticed. The company has not generated substantial amounts of traffic to its portals and is far behind top regional players such as Terra, Brazil's UOL, New York-based Starmedia Network, Miami-based Yupi or Argentina's El Sitio.

In fact, even the largest U.S. companies, such as AOL and Yahoo, have so far failed to make major inroads in the region. AOL launched operations in Brazil late last year and immediately ran into trouble when the media reported that consumers were complaining that the CD with AOL's proprietary software damaged the configuration of their desktops.

Also, AOL's Brazilian president, Francisco Loureiro, left two weeks after the company's much-publicized debut. Terra is considered the strongest player in the region, not only because it is swimming in cash after its highly successful IPO, but because it has the backing of Telefonica de Espana, its main shareholder and one of Latin America's dominant telecos. In a region where free Internet access is growing and where the telecommunication infrastructure is a significant bottleneck to the Internet's development, Telefonica's support is seen as crucial. Even before the Terra-Lycos rumor, the region had been awash with speculation of Terra mergers. The loudest has involved a Terra acquisition of StarMedia, but other presumed targets have included Globo.com, a portal recently launched by Brazil's Globo Comunicacoes e Participacoes, as well as UOL.

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