Terra buys Lycos in $12.5bn stock deal

Terra, Spain's biggest Internet business, is taking a huge leap onto the world stage with the $12.5 billion agreed takeover of Lycos.

The deal has the backing of Telefonica, the Spanish PTT and majority owner of Terra, which is underwriting the issuance of $2 billion of new Terra stock. Based on yesterday's closing price for Terra, this will give the new group a market cap of $30 billion.

Not bad for a merged entity that is expected to produce pro forma revenues of $500 million this year, and which will, after the rights offering, have $3 billion in the bank.

Bertelsmann, Europe's biggest media house and 50 per cent owner of Lycos Europe has also given the deal its blessing: it plans to fold Lycos Europe into the merged group in 2003. The company will also collaborate with Terra Lycos, as the new group is called, in a $1 billion five-year commerce agreement for the "purchase of advertising, placement and integration services from Terra Lycos worldwide".

Question is: will CMGI, Lycos' biggest shareholder with 17 per cent of the stock, put the spanner in the works, this time around? CMGI last year torpedoed the proposed takeover of Lycos by USA Networks. We guess it will jump for this one.

It is difficult to see how Lycos can, on its own, catch-up with AOL, Yahoo! or MSN. As a component of the Terra- Bertelsmann axis, its prospects to join the ranks of super portal are transformed. The combined entity already boast 50 million unique users a month, 175 million page impressions a day, and a powerful presence in Spanish-speaking countries. ®