SAN FRANCISCO (05/17/2000) - Lycos Inc. is being gobbled up by Spanish Internet firm Terra Networks SA. The merged company plans to expand its U.S., European, and Latin American markets and become the planet's first truly global Internet powerhouse.
The merger could give Internet heavyweights America Online Inc., Yahoo Inc., and others a run for their money, say observers. It's expected to become final in the third quarter of this year.
Representatives of both companies announced the deal, worth an estimated $12.5 billion, on Tuesday. If approved by shareholders, the deal creates a global Internet Goliath called Terra Lycos. The new company will reach 50 million users in 37 countries and become a multilingual, global Web portal and Internet access provider.
"Overnight, in one fell swoop, this company has jumped from a strong Internet competitor to a global powerhouse," says Bob Davis, Lycos chief executive, who will retain his job with Terra Lycos. Juan Villalonga, chair and chief executive officer of Terra Networks' telecommunications parent, Telefonica, and chair of Terra, will chair the merged company.
This is the first time a foreign company has acquired a U.S. portal. At the same time, the merging of Internet powerhouses raises the stakes in global Internet competition.
Think Globally, Surf Locally
The deal gives Terra Networks access to markets beyond Spain and Latin America, where it dominates. Terra also gets the wealth of Lycos' English language Internet content.
Terra Lycos will, in turn, market its Spanish language Web services to the expanding Hispanic population in the United States.
The deal accelerates Lycos' move into Europe and Latin America, where it aims to usurp archrivals America Online and Yahoo.
"It won't exactly be the beginning of the next Spanish Inquisition," says Annika Alford, Latin American Internet expert with the research firm IDC. But the acquisition gives Terra Lycos a huge foot in the door in the United States, she notes. Undoubtedly, the merged firm will present a powerful and aggressive competitor to AOL and Yahoo in Latin America and Europe.
Terra Networks is a leading ISP and portal in Europe. It is even stronger in Latin America, which is the fastest-growing region for Internet activities.
Lycos, the fourth-largest U.S. portal, is already operating in Germany, France, and England through its Lycos Europe subsidiary.
Terra Lycos Becomes Conquistador of Convergence "This merger leads the way in the convergence between the Internet, next-generation forms of connectivity, and both traditional and new media content," says Davis, the Lycos chief.
Terra Lycos has also cut a deal with Bertelsmann AG, the world's third-largest media company. Lycos already has a distribution arrangement with Bertelsmann, which is promising to buy $1 billion in advertising over the next five years.
Bertelsmann will distribute its books, music, and other materials over the Terra Lycos network, says Thomas Middelhoff, Bertelsmann's chief executive officer. Bertelsmann owns book publisher Random House, the BMG Entertainment record label, and numerous magazines and television stations.
Terra Lycos will also own 49 percent of a new wireless communications company being established with Telefonica. Terra Lycos will offer wireless and broadband Internet access in a number of markets, partnering with parent company Telefonica.
"The scope of convergence we have here is like no other market opportunity that has existed," Davis says.
A Worldly Web Company
The growing role of the Internet in foreign markets is at the heart of the purchase, says Whit Andrews, senior analyst with the research firm Gartner Group. While Lycos is strong in the United States, it still can't beat AOL and Yahoo, which dominate that market.
So, Lycos is looking toward high-growth markets such as Latin America, which is experiencing an explosion of Internet usage. The number of Latin American surfers is expected to swell from 8 million people today to nearly 30 million by 2003, according to research firm IDC.
"It's not so clear whether AOL and Yahoo will dominate Europe or Latin America," Whit says.
Terra Lycos will provide much-needed competition for AOL, which is merging with Time-Warner, observes Phil Daniels, an Internet analyst at PC Data. He applauds the acquisition.
That sentiment is shared by Villalonga, Terra Networks' chief. When asked Tuesday to comment on the pending AOL/Time-Warner merger, he said, "We don't like to compare, but from today on AOL has a competitor."