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Just so you know I’m still paying attention, even if I do need a slap with a clue noodle…


Tuesday May 16 7:49 PM ET Terra Agrees to Buy Lycos for $12.5 Billion By Jessica Hall NEW YORK (Reuters) – Spanish Internet group Terra Networks SA (NasdaqNM:TRRA – news) agreed on Tuesday to buy U.S. Internet search company Lycos Inc. (NasdaqNM:LCOS – news) for $12.5 billion in stock, in a move to create one of the world’s largest Internet companies and broaden its geographic reach.

Lycos’ novel online programming, as well as its youthful customer base, will help Terra turn its string of companies across Latin America and Europe into a World Wide Web powerhouse with broader global reach, industry analysts said. Lycos also will allow Terra, the fast-growing Internet arm of Telefonica de Espana SA (TRR.MC), to target the 30 million Spanish-speakers in the United States.

The merger, which was widely expected, as well an expanded partnership with German media company Bertelsmann AG and a new wireless joint venture with Telefonica, will help the companies better compete against Internet industry leaders America Online Inc. (NYSE:AOL – news) and Yahoo Inc. (NasdaqNM:YHOO – news)

“If your view of the world is that you need to be global, and you need to be in the U.S., then Lycos is a reasonable move,” said Warren Thune, vice president for Mercer’s Internet strategy group in Washington, D.C. “Lycos has knowledge about how to grow quickly and compete in the U.S., and Terra has knowledge about targeting niche market and Spanish-speaking customers that Lycos could capitalize on,” Thune said. Shares of Lycos surged about 60 percent in the past week in anticipation of the deal.

Terra agreed to buy Lycos Inc. for $97.55 a share, Lycos’ stock closed at 72-5/8, up 11, on Nasdaq. Terra’s stock fell 3-5/16 to 53-9/16 on Tuesday as investors feared that the acquisition may be too expensive.

The combined company, which will be called Terra Lycos Inc., will have pro forma 2000 revenues of about $500 million and together have an estimated 50 million unique users and 175 million page views per day. The company will have operations in 37 countries.

“Our combination brings together many complementary strengths that we believe will enable Terra Lycos to generate consistently higher growth in revenues, cash flow and users than either company could expect to achieve independently,” said Juan Villalonga, who is chairman of both Telefonica and Terra.

Villalonga will head the merged Lycos-Terra. Robert Davis, currently Lycos president and chief executive, will be chief executive.

Bertelsmann, Telefonica Play Significant Role As part of the merger pact, Bertelsmann, the third-largest media company in the world, agreed to purchase $1 billion of advertising, placement and integration services from Terra Lycos over five years.

Terra-Lycos, meanwhile, will gain access to Bertelsmann’s books, music, television, film and other media content, on preferred terms. This alliance builds on the existing Lycos-Bertelsmann joint venture in Europe — Lycos Europe.

“What will be interesting to see is what Bertelsmann can bring to the table, since that’s who has the most impressive content,” said Patrick Keane, senior analyst with research firm Jupiter Communications.

Terra Lycos also will have access to all of Telefonica’s media content. Telefonica is the largest broadcaster and the second largest pay-television operator in Spain and Argentina, where it also owns leading radio stations.

Terra Lycos will also own 49 percent of a new wireless joint venture being established in partnership with Telefonica. Terra Lycos will gain access to Telefonica’s extensive cable, fixed line, broadband, satellite and wireless networks, which now serve more than 60 million customers globally.

The relationships between the companies could become even more intertwined. Bertelsmann Chief Executive Thomas Middelhoff said a new deal between Bertelsmann and Telefonica could be announced later this week or the beginning of next week. He did not elaborate.

Terms Of The Deal Under the terms of the agreement, each Lycos share will swapped for $97.55 of Terra ordinary shares, or their equivalent in Terra American Depository Receipts. The deal is subject to a so-called collar, which protects against a decline in Terra’s stock price.

Terra shareholders, including Telefonica, will own between 54 percent and 63 percent of Terra Lycos, while Lycos shareholders will own the other 37 percent to 46 percent of the combined company.

As part of the deal, Telefonica agreed to underwrite a $2 billion rights offering by Terra. Upon completion of the offering, Terra Lycos will have more than $3 billion in cash.

The Lycos acquisition continues Telefonica’s Villalonga’s track record of aggressively bidding on acquisition targets. Previous bold moves include its bid for Brazilian fixed-line telephone company Telesp and a 5.5 billion euro all-share bid for Dutch television company Endemol Entertainment (EMOL.AS).

The Lycos deal may help Villalonga regain investor confidence after Telefonica’s failure to clinch a merger two weeks ago with KPN Telecom (KPN.AS) of the Netherlands, analysts said.

Some Concerns About Deal

While Lycos has been looking for partners or a buyer since its deal with Barry Diller’s USA Networks Inc. (NasdaqNM:USAI – news) fell through last year, some analysts expressed caution on the Terra deal.

Terra’s stock, although down from a 52-week high of 145, is still seen by some analysts as overpriced. Terra has a valuation of $10,000 per subscriber, compared with less than $5,000 for industry leader America Online Inc. (AOL.N), Salomon Smith Barney analyst Lanny Baker said in a research report. Concerns about Internet access pricing pressure, customer turnover and the shift toward high-speed Internet infrastructure could muddy investor enthusiasm for the deal, analysts said.

Terra Lycos will be listed on Nasdaq and Madrid’s stock exchange. The deal is expected to close in the third quarter of calendar year 2000.