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Thursday, 10 May, 2001, 20:55 GMT 21:55 UK
Terra Lycos looks for US buy
Terra Lycos website
Terra Lycos rumoured to been on acquisition trail
By BBC News Online's North America Business Reporter, David Schepp

It is an Internet feeding frenzy involving several of the web's biggest players.

Madrid-based Terra Lycos is rumoured to be in buy-out talks for the second largest US internet-access provider (ISP) EarthLink.

But speculation also swirled on Thursday that Terra Lycos, one of the world's largest internet providers, may also be eyeing San Francisco-based CNet Networks, a content supplier and internet portal that has survived a fierce online-media shakeout.

Regardless of which company Terra Lycos intends to buy, the combined company would be worth more than $1.5bn, however, Terra Lycos cannot afford both.

Roots in merger

The company was formed last fall after Terra Networks merged with web portal Lycos in a deal valued at $12.5bn when it was announced in May 2000.

Through a mixture of acquisitions and expansion, Terra Lycos is now operating in 41 countries and 20 languages.

A fully owned subsidiary of the Spanish telephone company Telefonica, Terra Lycos is one of the biggest internet companies in Europe and claims to reach 91 million unique users every month.

The company has been searching for some time for a partner to help diversify its offerings.

After its successful stock market debut, Terra Lycos has been sitting on a war chest of about $2.2bn (£1.5bn).

In January, Terra Lycos bought financial website Raging Bull from AltaVista, in an effort to drive more traffic to its sites. The deal gave Terra Lycos access to an online community of two million.

AOL Time Warner

But Terra Lycos has its sites on a much bigger target, hoping to compete with multi-media giant AOL Time Warner, which owns America Online, the US's largest ISP.

Analysts say for Terra Lycos to compete with the likes of AOL Time Warner, which also owns a broad spectrum of broadcast and print media, acquiring EarthLink, with its loyal customer base of 4.8 million, is key.

"Anyone who wants to compete with AOL Time Warner has to buy Earthlink," said Grank Gristina, analyst with Robertson-Humphreys.

"The dial-up market is maturing¿ they have to buy consolidated subscriber bases."

Rough year

Despite growth, it has been a rough year for Terra Lycos, which has witnessed the departure of several key executives.

In late February the company lost Abel Linares, who was the chief executive of Terra Networks. Bob Davis, the founder of Lycos, gave up his post as chief executive of Terra Lycos earlier in the month as did chief financial officer Ted Phillip.

The company has also seen its shares dwindle in value as tech stocks tumbled throughout the winter on US markets.

From a high of about $17 in mid January, Terra Lycos shares have since lost half their value, ending Thursday's trading at $8.47, off 2.3% from the previous session.

News of a possible merger, however, left shares of Earthlink nearly unchanged, while CNet climbed nearly 8% to $12.57.

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See also:

08 May 01 | Business
Terra Lycos cuts jobs
22 Feb 01 | Business
Terra Lycos chief quits
01 Feb 01 | Business
Terra Lycos chiefs step down
30 Jan 01 | Business
Terra Lycos buys page views
16 May 00 | Business
Terra and Lycos tie knot
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