The rumored plan by Spain's Terra Networks to acquire Lycos Inc., the fourth-most-popular Internet portal site, faces daunting hurdles, but experts believe such a deal could create a worldwide Internet powerhouse.
Although Lycos is an also-ran in the Web portal wars, it is still a formidable Web presence with nearly 33 million unique visitors per month, according to the New York research firm Media Metrix.
For the Record
Los Angeles Times Wednesday May 17, 2000 Home Edition Business Part C Page 3 Financial Desk 2 inches; 50 words Type of Material: Correction
Lycos deal--In a story in Tuesday's Business section concerning the possible acquisition of Lycos Inc. by Terra Networks, a quote regarding the deal's complexity should have been attributed to Martha Bennett of Giga Information Group and a quote regarding regional markets should have been attributed to Andrea Williams Rice of Deutsche Banc Alex. Brown.
Last year USA Networks Inc., led by Chairman Barry Diller, attempted to take control of Waltham, Mass.-based Lycos in a merger that valued the Web company at about $6.5 billion. But the deal was quashed by CMGI Inc., the Andover, Mass.-based investment company that owned about 20% of Lycos shares at the time. CMGI viewed Diller's offer as far too low.
A year later, the company's market capitalization stands in the same vicinity--about $6.8 billion after Monday's gains.
But Terra Networks reportedly may offer a hefty $10 billion in stock to acquire the company. The premium might be welcomed by CMGI, which last year gained a controlling interest in Web search service AltaVista, a Lycos competitor. CMGI--which owned about 12% of Lycos as of Jan. 31--has been decreasing its Lycos holdings and is looking to divest its remaining shares, analysts said.
Lycos shares shot up $7.50--nearly 14%--to close Monday at $61.63 in Nasdaq trading.
In the last year, Lycos has watched leading Web companies announce deals that have transformed their businesses. America Online and Time Warner plan to merge. The Web portal Excite and high-speed, or broadband, Internet service provider @Home joined forces to form Excite@Home.
"Lycos has been sitting on its hands as many of their competitors have been passing them by," said Patrick Keane, an analyst with Jupiter Communications in New York.
AOL and Yahoo have already won the Web portal race, he said, and without a major partnership, Lycos can't catch up as a general-interest Web destination.
For its part, Terra Networks--a fast-growing Internet access provider and Spanish-language portal--badly needs an English-language service to keep expansion plans on track, given the dominance of English on the Web. It could also benefit from Lycos' European Web portal, a joint venture with the German media giant Bertelsmann, which is reportedly also involved in the discussions.
In return, Terra Networks would give Lycos a huge presence in Spain and Latin America.
