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Telefonica likes Lycos for $12.6 bil

Spanish telco boosts global reach

Terra Networks, the Internet arm of Spanish telco Telefonica de Espana, has acquired U.S. Internet search engine Lycos for $12.6 billion in stock, a move expected to create one of the world’s largest dot-coms.

Deal, announced Tuesday, marks the first time a foreign company has taken over a major U.S. portal. Telefonica has been on an aggressive buying spree as subsid Telefonica Media recently acquired Dutch-based TV producer Endemol Entertainment.

The expected move will enable Telefonica to boost the global reach of its Internet efforts beyond Latin America and Europe and will give Lycos access to 30 million Spanish speakers in the U.S.

Most important, however, the new Terra-Lycos will have access to books, music, film, television and other media properties owned by German conglom Bertelsmann.

Lycos and Bertelsmann jointly operate Lycos Europe, the third-most-popular network of Web sites in Germany. Bertelsmann has said it will buy $1 billion in advertising and services from the combined company over the next five years.

Despite Telefonica’s assets, acquisition pits the company against Web giants America Online and Yahoo!

Web ‘powerhouse’

Concern’s execs aren’t bothered. “We have created a global Internet powerhouse,” Lycos CEO Bob Davis said. “This merger leads the way in the convergence between the Internet, next-generation forms of connectivity, and both traditional and new-media content.”

As part of the deal, Terra plans to offer about 1.7 shares of its stock for each share of Lycos.

Deal finally ends Lycos’ search for a partner or buyer after its deal with Barry Diller’s USA Networks fell through last year. That deal was valued at a much lower $6.5 billion.

The newly combined Terra-Lycos, to be based in Waltham, Mass., will be headed by Davis and Lycos chief financial officer Ted Philip. Telefonica and Terra chairman Juan Villalonga will be chairman of the new company.

Acquisition is expected to close in the third quarter of this year, provided it receives shareholder and regulatory approval.

$3 bil in cash

Telefonica will underwrite a $2 billion rights offering by Terra Networks before the close of the deal. As a result, Terra-Lycos is expected to have more than $3 billion in cash after the offering.

The 14-member Terra-Lycos board will include Villalonga and 10 other Terra Networks designees, as well as Davis, Philip and one other Lycos designee. Davis will also join the board of Telefonica Media.

Shares of Lycos rose $11 on Tuesday to close at $72.63 — a gain of nearly 18%.

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