If the two sides do come to terms on a deal, it would create a global Internet portal. However, Terra (Nasdaq: TRRA) and Lycos (lcos) could simply form an Internet alliance, people familiar with the situation warned. Indeed, initial discussions between the two sides had centered on an alliance but then progressed to include acquisition talks.
Exact terms couldn't be learned, but under the scenario being discussed, Terra, the Internet unit of Telefonica SA, would use its American depositary shares to acquire Lycos in a stock-swap deal. Lycos is believed to be seeking at least $90 a share, these people said. Germany's Bertelsmann AG, which has a joint venture with Lycos, might also play a role in the combined entity.
Terra confirmed Friday that it was in talks with Lycos but said it has yet to reach any "definitive agreement which deserves to be made public." Lycos declined to comment.
The discussions come in the wake of an ill-fated plan by Telefonica, the big Spanish telecommunications company, to merge with KPN NV of the Netherlands, in what would have been a $60 billion deal. Ever since then, Telefonica Chairman Juan Villalonga's job has been up in the air, and he has been under intense pressure. A Terra-Lycos deal would strengthen Villalonga's position, since he also serves as chairman of Terra.
At 4 p.m. Friday on the Nasdaq Stock Market, Terra's American depositary shares were up $2.625 to $59.375. Lycos, which soared when news first surfaced of a possible deal with Terra, was at $54.125, up only 12.5 cents.
Terra's 18.2 billion-euro ($16.41 billion) market capitalization makes it the second largest in the European Internet field. Lycos, despite its well-established brand name, is still a far cry from the likes of Yahoo! Inc. (yhoo) and has a market value of about $6 billion.
For Terra, any sort of deal with Lycos would be good news, giving the Spanish-language portal high-quality content in English, the lingua franca of the Internet. Lycos, the fourth-biggest Internet portal in the United States, has a 43 percent stake in Lycos Europe NV, with a presence in leading markets such as Germany, France and England. A deal would offer Terra access to richer e-commerce and advertising opportunities in wealthier and more Internet-savvy markets than Spain and Latin America, where Terra is dominant.
While Lycos is already present in Latin America's leading Internet markets, analysts say it could only benefit from a link-up with the dominant player. "Linking Terra's access to customers with Lycos's content makes a lot of sense," said Gerard van Hammel Platerink, an Internet analyst with Salomon Smith Barney in London.
Terra's first-quarter results, released Friday, underline the company's need to capture more advertising and e-commerce revenue, still hard to come by in its main markets. The company had total revenue of 36.8 million euros, more than doubling the 16.6 million euros earned a year earlier. Net losses also widened to 70 million euros from 26.5 million euros a year earlier, reflecting increased marketing costs.
But alarmingly, some two-thirds of Terra's revenue was generated by access charges -- even as free-access models take hold across Europe and Latin America. Advertising revenue totaled 6 million euros in the first quarter despite more than 700 million total page views, while e-commerce revenue came to 840,000 euros.
Lycos not only has more experience in the rough-and-tumble U.S. market, it has better e-commerce partners than Terra and is better at translating high visibility into advertising revenue, said van Hammel Platerink. Terra appears to have decided that being the Spanish-language leader isn't enough in an English-speaking Internet world.
Terra initially aimed its U.S. portal at Hispanics. But with generally lower household incomes and Internet-penetration rates, the Hispanic market isn't the ideal target audience for a portal that desperately needs to generate revenue. What's more, many U.S. Hispanics are bilingual and prefer to surf the Web in English, where there's a greater choice of content.
In the end, Terra has to balance the need for revenue in the present against visions of a Latin American explosion in the future. But in the Internet world, even more than in brick-and-mortar boardrooms, the ability to anticipate trends and stay one step ahead of the competition is crucial not just to growth, but survival.
"If you put your dream hat on," says van Hammel Platerink, "you can imagine where they might be in a few years. The question then is -- do you believe in these guys to make the right deals?" Spain's Terra Networks SA is in serious discussions to acquire Lycos Inc. for at least $10 billion in stock, though there is a significant chance the two sides won't reach a deal, according to people familiar with the matter.
If the two sides do come to terms on a deal, it would create a global Internet portal. However, Terra (Nasdaq: TRRA) and Lycos (lcos) could simply form an Internet alliance, people familiar with the situation warned. Indeed, initial discussions between the two sides had centered on an alliance but then progressed to include acquisition talks.
Exact terms couldn't be learned, but under the scenario being discussed, Terra, the Internet unit of Telefonica SA, would use its American depositary shares to acquire Lycos in a stock-swap deal. Lycos is believed to be seeking at least $90 a share, these people said. Germany's Bertelsmann AG, which has a joint venture with Lycos, might also play a role in the combined entity.
Terra confirmed Friday that it was in talks with Lycos but said it has yet to reach any "definitive agreement which deserves to be made public." Lycos declined to comment.
The discussions come in the wake of an ill-fated plan by Telefonica, the big Spanish telecommunications company, to merge with KPN NV of the Netherlands, in what would have been a $60 billion deal. Ever since then, Telefonica Chairman Juan Villalonga's job has been up in the air, and he has been under intense pressure. A Terra-Lycos deal would strengthen Villalonga's position, since he also serves as chairman of Terra.
At 4 p.m. Friday on the Nasdaq Stock Market, Terra's American depositary shares were up $2.625 to $59.375. Lycos, which soared when news first surfaced of a possible deal with Terra, was at $54.125, up only 12.5 cents.
Terra's 18.2 billion-euro ($16.41 billion) market capitalization makes it the second largest in the European Internet field. Lycos, despite its well-established brand name, is still a far cry from the likes of Yahoo! Inc. (yhoo) and has a market value of about $6 billion.
For Terra, any sort of deal with Lycos would be good news, giving the Spanish-language portal high-quality content in English, the lingua franca of the Internet. Lycos, the fourth-biggest Internet portal in the United States, has a 43 percent stake in Lycos Europe NV, with a presence in leading markets such as Germany, France and England. A deal would offer Terra access to richer e-commerce and advertising opportunities in wealthier and more Internet-savvy markets than Spain and Latin America, where Terra is dominant.
While Lycos is already present in Latin America's leading Internet markets, analysts say it could only benefit from a link-up with the dominant player. "Linking Terra's access to customers with Lycos's content makes a lot of sense," said Gerard van Hammel Platerink, an Internet analyst with Salomon Smith Barney in London.
Terra's first-quarter results, released Friday, underline the company's need to capture more advertising and e-commerce revenue, still hard to come by in its main markets. The company had total revenue of 36.8 million euros, more than doubling the 16.6 million euros earned a year earlier. Net losses also widened to 70 million euros from 26.5 million euros a year earlier, reflecting increased marketing costs.
But alarmingly, some two-thirds of Terra's revenue was generated by access charges -- even as free-access models take hold across Europe and Latin America. Advertising revenue totaled 6 million euros in the first quarter despite more than 700 million total page views, while e-commerce revenue came to 840,000 euros.
Lycos not only has more experience in the rough-and-tumble U.S. market, it has better e-commerce partners than Terra and is better at translating high visibility into advertising revenue, said van Hammel Platerink. Terra appears to have decided that being the Spanish-language leader isn't enough in an English-speaking Internet world.
Terra initially aimed its U.S. portal at Hispanics. But with generally lower household incomes and Internet-penetration rates, the Hispanic market isn't the ideal target audience for a portal that desperately needs to generate revenue. What's more, many U.S. Hispanics are bilingual and prefer to surf the Web in English, where there's a greater choice of content.
In the end, Terra has to balance the need for revenue in the present against visions of a Latin American explosion in the future. But in the Internet world, even more than in brick-and-mortar boardrooms, the ability to anticipate trends and stay one step ahead of the competition is crucial not just to growth, but survival.
"If you put your dream hat on," says van Hammel Platerink, "you can imagine where they might be in a few years. The question then is -- do you believe in these guys to make the right deals?"
