Market Likes This Rumored Lycos Deal

There’s nothing like a strong buyout rumor involving major ‘Net players to
get the adrenaline pumping on a Monday.

Especially when one of the principals – Lycos
– was the star of last year’s most spectacular (and
melodramatic) failed merger, in which entertainment mogul Barry Diller’s USA
Networks walked away from an announced acquisition of the Web portal after
LCOS shareholders objected to the takeover’s terms, which they felt
undervalued Lycos.

That shareholder revolt was portended on the day the merger was announced in
February 1999, when LCOS shares sank like a rock. If Monday’s reaction to
rumors that Spanish ISP Terra Networks intends to buy Lycos for $10 billion
is any indication, the Web portal finally may have the large partner it has
(See Lycos: Partner Or Perish.)

Shares of LCOS soared as high as 17 percent over Friday’s close to 63 = in
early trading Monday, while Terra Networks’ stock was down 7/8 to 58 =.

Remember, this still is only a rumor, not an announced merger. Indeed,
sources close to the situation reportedly told the Wall Street Journal there
may be no deal at all, or there merely may be an alliance instead.

But initial indications are the market likes what it is hearing, and for
good reason. From Lycos’ point of view, the $10 billion Terra reportedly may
offer is a sizable premium over the company’s $5.9 billion market
capitalization through Friday.

For Terra, the second-largest European Internet company with a market cap of
$16.3 billion, buying Lycos would give it an opportunity to target 30
million Hispanic customers in the U.S. who, on average, have more buying
power than Terra’s customers in Latin America, where the company is a

Though it is far behind America Online and Yahoo! in
terms of traffic, Lycos is the fourth most-popular Internet site, with 33
million monthly visitors. That’s awfully valuable property for a global
company looking to add to its customer base.

No deal has been signed, and we still have to hear from CMGI , which owns Lycos and
which yanked its support of the USA Networks acquisition soon after it was
announced. But I get a strong sense that these two companies want to do
business together, and the market (so far) has been encouraging.

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