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Wednesday, May 28, 2003

Coming Down to Earth

This is an interesting one. Terra Lycos has to be one of the big disaster stories of the European internet boom. Launched at the height of the buying craze, it was born of a merger with Telefonica's Terra and internet search engine Lycos, in an attempt by the Spanish monopoly to gain global reach. Ill conceived from the outset, and only managing to continually lose money, this adventure has effectively been paid for by all Spain's 'emprisoned' fix line customers. When I complain about the pathetic behaviour of some of the European 'multi-nationals' this is exactly the kind of thing I have in mind. Of course there's no question of any accountability, anywhere. I don't think there'll be too many mourners at the funeral.

Telefónica, the Spanish telecoms group, said on Wednesday it will launch a cash bid for the remaining shares of Terra Lycos, its internet business, costing as much as €1.7bn if acceptances are won from all the target shareholders. The move had been a long-running rumour - consistently denied by Telefónica - as analysts questioned the logic of the parent group competing for business against its own internet unit. Telefónica said its earnings before interest, taxes, depreciation and amortisation would improve by €269m in the 2003 to 2006 period after absorbing Terra Lycos.The offer is at €5.25 a share, valuing the company at €3.26bn, less than half the €13 price during its initial public offer in November 1999, and conditional on receiving 75 per cent of its shares.Telefónica, which owns 36.5 per cent of the company, said the operation values Terra Lycos at 15 per cent above its average share price over the past six months and 51 per cent above its business value. The internet business has cash reserves of €1.73bn, equivalent to €3.09 a share.

Terra Lycos shares were suspended from trading before the announcement, after rising 5.5 per cent to €4.77 in early deals.The company has yet to report a profit, as the on-line advertising market and competition from Telefónica to deliver high-speed internet access prevented its business plan from taking off.The business model was thrown into jeopardy after Bertelsmann, the German media group, backed out of a $1bn online advertising deal with Terra Lycos reached at the height of the internet boom in 2000. Its $12.5bn merger with Lycos the same year also created problems, including the resignation of the management team at the Boston-based internet company. Telefónica wrote off €1.3bn relating to that acquisition earlier this year.
Source: Financial Times

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