Terra and Lycos suffer shares plunge

NEWS Shares in Terra Networks and Lycos have fallen sharply today despite a warm reaction to their $12.5bn merger from industry analysts. Internet portal Lycos opened almost ten per cent down on Tuesday's close on Nasdaq, and continued to struggle in mid-morning trading. Spanish Internet company, Terra Networks, also trading on Nasdaq, opened seven per cent lower than the previous day's close. However, analysts insisted the merger is a positive deal for both companies. The $12.5bn all-stock deal includes a tie up with German online giant Bertelsmann which will provide content for the global portal business, to be named Terra Lycos. Martha Bennett, VP of research in Europe for the Giga Group, said the move had an obvious business strategy - to gain geographically diverse customers for Lycos and raise Terra's profile. She told silicon.com: "This has the potential to make Terra Lycos a European AOL in terms of customers and content, but it could still fall foul of cultural and political difficulties." Jeffrey Mann, senior analyst at the Meta Group, said the deal was good news and follows a trend of aggregation in the portal industry. "At the moment it's just a battle to win eyeballs - we'll see a lot more of deals like this," he said. Terra Networks is a spin-off of giant Spanish telco Telefonica, which currently owns 67 per cent of the company, and claims to command 60 million global customers, mostly in Spain and Latin America. Giga Group's Bennett said the move may have as much to do with Juan Villalonga, chairman of Telefonica, as any other long-term strategy. Bennet said: "After the collapse of the Telefonica-KPN deal last week, Villalonga was desperately in need of a big, successful deal to restore his credibility - and this could well be it."