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Tuesday May 16 4:52 PM ET

Terra to Buy Lycos for $12.5 Billion

NEW YORK (Reuters) - Spanish Internet group Terra Networks SA (NasdaqNM:TRRA - news) agreed on Tuesday to buy U.S. Internet search company Lycos Inc. (NasdaqNM:LCOS - news) for $12.5 billion in stock, or $97.55 a share, in a move to create one of the world`s largest Internet companies and broaden its geographic reach.

Lycos` novel programming, as well as its youthful customer base, will help Terra turn its string of companies across Latin America and Europe into a World Wide Web powerhouse with more global reach, analysts said.

Lycos also will allow Terra, the fast-growing Internet arm of Telefonica de Espana SA (TRR.MC), to target the 30 million Spanish-speakers in the United States.

The combined company, which will be called Terra Lycos Inc., will have pro forma 2000 revenues of about $500 million and together currently have an estimated 50 million unique users and 175 million page views per day.

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``Our combination brings together many complementary strengths that we believe will enable Terra Lycos to generate consistently higher growth in revenues, cash flow and users than either company could expect to achieve independently,`` said Juan Villalonga, who is chairman of both Telefonica and Terra.

Villalonga will head the merged Lycos-Terra. Robert Davis, currently Lycos president and chief executive, will be chief executive.

As part of the agreement, Germany`s Bertelsmann AG, the third-largest media company in the world, agreed to purchase $1 billion of advertising, placement and integration services from Terra Lycos over five years.

Terra-Lycos, meanwhile, will gain access to Bertelsmann`s books, music, television, film and other media content, on preferred terms. This alliance builds on the existing Lycos-Bertelsmann joint venture in Europe, Lycos Europe, of which Bertelsmann will remain a significant shareholder.

Terra Lycos also will have access to all of Telefonica`s media content. Telefonica is the largest broadcaster and the second-largest pay-television operator in Spain and Argentina, where it also owns leading radio stations.

``Terra provides Lycos with immediate access to 550 million new potential customers and broad reach in the Spanish- and Portuguese-speaking world. Lycos provides Terra with rich content offerings, blue-chip advertisers and e-commerce capabilities, which will be further enhanced by both companies` relationships with Bertelsmann,`` Davis said.

Terra Lycos will have operations in 37 countries, with leading positions in multiple high-growth markets in North America, Latin America, Asia and Europe.

Under the terms of the agreement, unanimously approved by the boards of Terra and Lycos, each Lycos share will be swapped for $97.55 of Terra ordinary shares, or their equivalent in Terra American depository receipts. The deal is subject to a so-called collar, which protects against a decline in Terra`s stock price.

Terra shareholders, including Telefonica, will own between 54 percent and 63 percent of Terra Lycos, while Lycos shareholders will own the other 37 percent to 46 percent of the combined company.

As part of the deal, Telefonica agreed to underwrite a $2 billion rights offering by Terra. The offering will be started before the closing of the merger.

Telefonica will subscribe for its pro rata shares and purchase any shares not purchased by the other Terra shareholders. The rights offering will be priced at today`s Madrid closing price of $56.13 per Terra share, implying a pro forma valuation of about $30 billion for Terra Lycos.

Upon completion of the offering, Terra Lycos is expected to have more than $3 billion in cash, making it one of the most highly capitalized Internet companies in the world.

Terra Lycos will also own 49 percent of a new wireless joint venture being established in partnership with Telefonica. Terra Lycos will gain access to Telefonica`s extensive cable, fixed line, broadband, satellite and wireless networks, which now serve more than 60 million customers globally.

The deal is expected to close in the third quarter of calendar year 2000, subject to shareholder and regulatory approval. The transaction will be accounted for as a purchase and is expected to be tax-free to Lycos shareholders.

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...jetzt grad eben...

Tuesday May 16, 4:30 pm Eastern Time

Company Press Release

TERRA Networks S.A. And Lycos to Host Press/Analyst Meeting, Global Webcast and Conference Call

MADRID/WALTHAM, Mass.--(BUSINESS WIRE)--May 16, 2000--Terra Networks, S.A. (MC: TRR; NASDAQ: TRRA), the leading provider of Internet access and interactive content and services to the Spanish- and Portuguese- speaking world, and Lycos (NASDAQ: LCOS - news), the Internet`s leading multi-brand network, will host a press and analyst meeting, global webcast and dial-in conference call today, May 16, 2000, at 5 p.m. (EST) to discuss the acquisition of Lycos by Terra. The meeting will be located at The Equitable Auditorium, 787 Seventh Avenue. Those not attending the event may listen in and participate in the question-and-answer section by dial-in conference call or via webcast. The webcast will be available for one month for those who are unable to attend or listen to the meeting live.

WHAT: Terra and Lycos

Press/Analyst Meeting, Conference Call and Global Webcast

WHO: Juan Villalonga, Chairman of Telefonica

Bob Davis, CEO of Lycos

Abel Linares, CEO of Terra

Thomas Middelhoff, CEO of Bertelsmann

WHEN: Tuesday, May 16, 2000

5 p.m. EST (11 p.m. Madrid Time)

WHERE: The Equitable Auditorium; Ground Floor

787 Seventh Avenue (between 51st & 52nd), New York City

CONFERENCE Toll free from United States only: 877-427-0636 CALL NUMBER: English language worldwide access: 973-321-1030

Spanish language worldwide access: 973-321-1040

Portuguese language worldwide access: 973-321-1020

German language worldwide access: 973-872-3100

Dial-in by 4:45 p.m. EST

WEBCAST www.terra.com ACCESS: www.lycos.com

Satellite May 16, 2000, 5:00 to 7:00 pm (EST) Coordinates: North America: SBS 6 Transponder 15

Europe: EUTELSAT 2, Flight 4, Transponder 21

South America: AOR 806 12B/Channel 33


--------------------------------------------------------------------------------
Contact:

For Terra: For Lycos:
Pablo Fuentes Brian Payea
34+629 782 027 781-370-2885
pablo.fuentes@ [e-mail]
corp.terra.com

Victoria Weld George Sard
Todd Fogarty Brandy Bergman
Kekst and Co. Citigate Sard Verbinnen
212-521-4800 212-687-8080
-or-
For Telefonica: For Bertelsmann:
Vanessa Colomar Liz Young
Burson-Marsteller 212-782-1120
212-614-5040
[e-mail]


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Tuesday May 16, 5:23 pm Eastern Time

ANALYSIS-Terra leaps into the Internet big league

By William Schomberg

MADRID, May 16 (Reuters) - A year ago, the Internet empire of Terra Networks consisted of a single portal company in Barcelona and a half-empty building on the edge of Madrid.

Now, after Tuesday`s $12.5-billion, all-share acquisition of U.S. search engine Lycos Inc. (NasdaqNM:LCOS - news), it has turned itself into a global Internet titan spanning the Americas with a big door into Europe too.

Expansion was never going to be a problem with a parent like Telefonica , the aggressive Spanish telecoms group that has grabbed much of Latin America`s telecoms industry.

But analysts said on Tuesday in anticipation of the deal that Terra now faced its biggest challenge -- leading the developed, English-language Internet world and at the same time tightening its grip on the still relatively virgin Spanish- and Portuguese-speaking markets.

``That`s going to be one of the big doubts,`` said Gustavo Diaz, an Internet analyst at Madrid brokers Beta Capital. ``But the language of the Internet is English and Terra`s focus on the Hispanic world was always going to limit their ambition.``

FROM HUMBLE ORIGINS, A GIANT IS BORN

Terra began life quietly in December 1998 as Telefonica Interactiva, an obscure division of the huge Spanish telecoms group. The first of a string of quick deals came in March last year when it snapped up Grupo Ole, a small portals company boasting a turnover of less than $800,000 a year.

By September, the newly renamed Terra Networks had gobbled up portal companies in Mexico, Brazil, Argentina, Chile, Peru and other smaller Latin American countries for $600 million.

In November, a spectacular stock market listing catapulted Terra straight to the top of Europe`s listed Internet companies as its share price nearly tripled on its first day.

The shares had put on gains of more than 1,000 percent by mid-February when the tech stock bubble began to deflate.

But at its closing price of 62 euros on Tuesday in Madrid, Terra was still worth more than 17 billion euros, nearly five times its debut price, or about 8,700 euros for each of its nearly two million users, above the European average.

Analysts attributed much of that premium to the company`s focus on Latin American and Iberia with all its juicy potential as home to 550 million people.

``(Terra-Lycos) looks like a good match but some people might not like the idea of moving into the United States, which is the most competitive market there is,`` said an Internet analyst with a foreign bank in Madrid on Monday.

German media group Bertelsmann (quote from Yahoo! UK & Ireland: BTGGga.F), which agreed an alliance with the newly formed Terra-Lycos Inc, would provide an inroad into Germany, Europe`s biggest national market.

GO GLOBAL, BUT KEEP IT LOCAL

Terra insiders say the company has hit the right formula to adapt to any market by buying up a leading local player, keeping the management in place -- Lycos President Robert Davis will be chief executive of the new group, second only to Telefonica and Terra Chairman Juan Villalonga -- and get local content.

``They`ve got Brazilians in Brazil, Mexicans in Mexico and now they`ve got Americans in the United States,`` said one former Terra employee. ``It`s not Spanish, it`s global in every sense.``

As well its trendy content that will be a good match for Terra`s young client base, Lycos will also bring the Telefonica group a priceless online asset -- profitability, just as markets appear to be tiring of Internet firms that make no money.

Analysts said that was why Telefonica was ready to splash out a roughly 80-percent premium for the U.S. company, albeit in its own shares.

``It is a recognition that Terra`s value is very virtual and that other shareholders outside of the Spanish domestic market are not prepared to accept it at these levels,`` said Jonathan Shantry, a telecoms analyst with Credit Lyonnais in London. ``That`s why you are seeing such a premium to Lycos.``

Other Terra-watchers said they thought there could be further deals up Telefonica`s sleeve, principally to corner vital local content for its portals.

In March it launched a 5.5-billion-euro offer for Dutch television company Endemol Entertainment and two weeks later Mexican broadcaster TV Azteca (NYSE:TZA - news) said it had been approached by the Spanish group.

Notably, Telefonica has no media holdings in Latin America`s biggest market, Brazil.

``I think the process of consolidation in the Internet market has another two or three years of volatility ahead,`` said Miguel Perez, president of Spain`s Association of Internet Users. ``There`s been explosive growth but for the Hispanic market at least, this is just the start.``


Schönes Schlußwort von Herrn Perez

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