May 17, 2000
(PC World)
Waltham, Mass.-based Lycos Inc. is being gobbled up by Spanish Internet firm Terra Networks SA under a $12.5 billion deal announced yesterday that's aimed at creating a multilingual global Web portal that will reach 50 million users in 37 countries.
The merger could give Internet heavyweights America Online Inc., Yahoo Inc., and others a run for their money, observers said. The deal is expected to close in the third quarter of this year.
"Overnight, in one fell swoop, this company has jumped from a strong Internet competitor to a global powerhouse," said Bob Davis, Lycos' chief executive, who will retain his job with Terra Lycos. Juan Villalonga, the chairman and CEO of Terra Networks' telecommunications parent, Telefonica, and the chairman of Terra, will run the merged company.
This is the first time a foreign company has acquired a U.S. portal. The merging of Internet powerhouses raises the stakes in global Internet competition.
The deal gives Terra Networks access to markets beyond Spain and Latin America, where it dominates. Terra also gains the wealth of Lycos' English-language Internet content.
In turn, Terra Lycos will market its Spanish language Web services to the expanding Hispanic population in the U.S.
The deal accelerates Lycos' move into Europe and Latin America, where it aims to usurp archrivals America Online Inc. and Yahoo Inc.
"It won't exactly be the beginning of the next Spanish Inquisition," said Annika Alford, a Latin American Internet expert at Framingham, Mass.-based International Data Corp. (IDC). But the acquisition does give Terra Lycos a huge foot in the door in the U.S., she noted. 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 Internet service provider and portal in Europe. It's 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.
"This merger leads the way in the convergence between the Internet, next-generation forms of connectivity and both traditional- and new-media content," Davis said.
Terra Lycos has also cut a deal with Bertelsmann AG, the world's third-largest media company. Lycos already has a distribution arrangement with the German company, which is promising to buy $1 billion in advertising from Terra Lycos over the next five years.
Bertelsmann will distribute its books, music and other materials over the Terra Lycos network, said Thomas Middelhoff, Bertelsmann's CEO. The company owns book publisher Random House Inc., the BMG Entertainment record label and numerous magazines and television stations.
Terra Lycos will also own 49% of a new wireless communications company being established with Telefonica. Terra Lycos will offer wireless and broadband Internet access in a number of markets by partnering with parent company Telefonica.
"The scope of convergence we have here is like no other market opportunity that has existed," Davis said.
The growing role of the Internet in foreign markets is at the heart of the purchase, said Whit Andrews, a senior analyst at Stamford, Conn.-based Gartner Group Inc. Although Lycos is strong in the U.S., it still can't beat AOL and Yahoo, which dominate that market.
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 IDC.
"It's not so clear whether AOL and Yahoo will dominate Europe or Latin America," Whit said.
Terra Lycos will provide much-needed competition for AOL, which is merging with Time Warner Inc., noted Phil Daniels, an Internet analyst at PC Data Inc. in Reston, Va., who applauded the acquisition.
That sentiment is shared by Villalonga. 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."