Terra to buy Lycos for $10 billion

In one of the biggest merger surprises of late, Spain-based Terra Networks has agreed to pay $10 billion for Lycos, the fourth largest Internet portal after Yahoo, America Online and Excite@Home. Terra is the Internet arm of Telefonica de Espana. The offer of swapping one share of Lycos for 1.5 shares of Telefonica stock means Lycos shareholders will receive $89 per share, well above the $54 closing price last Friday and the $40 price range Lycos was trading before reports of the merger talks surfaced last week.

Terra has some two million Spanish and Portuguese-speaking subscribers. Together, the Terra-Lycos combination would create one of the world's four biggest Internet companies. Lycos would help Terra target some 30 million Spanish-speaking residents and citizens in the United States. And, Lycos would help Terra turn its string of companies across Latin America and Europe into a major Web powerhouse.

But the Lycos deal would be a big gamble by any measure. Terra lost some $70 million in the first quarter, nearly double its revenues of $35 million. Some analysts also questioned the deal on the grounds that Terra customers and shareholders may not like the idea of seeing the company moving into the highly competitive United States market. Lycos has been looking for partners or a buyer since its deal with USA Networks fell through last year.