MEMORANDUM

Date:
To:
From: 
Re: 		 05/18/00
Dr. David Chappell
Lauren E. Schmidlin
Deogun, Nikhil & Johnson, Keith.  Lycos, Terra Networks of Spain Discuss Merger to Create Global Internet Portal.  The Wall Street Journal, May 15, 2000:  pp. A3.

Article Summary:

Lycos Inc. and Terra Networks SA of Spain are discussing a merger that would create a global Internet portal.  This would create a market capitalization of $22 billion.  Even though the exact terms were not know, basically, Terra, the Internet unit of Telefonica SA, would gain Lycos in a stock-swap transaction.  The talking initially revolved around forming a broad alliance but rapidly moved into talk of a merger. 

Some Information about each company:

Terra:

Terra is the second largest in the European market with a market capitalization of 18.2 billion-euro or $16.4 billion.  Any type of a deal with Lycos would be good news for Terra.  "A deal would offer Terra access to richer e-commerce and advertising opportunities in wealthier and more Internet-savvy markets than Spain and Latin America, where Terra is dominant." (pp. A3)  After the release of Terra's first-quarter results, they showed the need to capture more advertising  and e-commerce revenue.  Which is still hard to come by in its main market.  About two-thirds of Terra's revenue was generated by access charges, even though free-access models are taking hold across Europe and Latin America.  The company's total revenue was 36.8 million euros, which more then doubled it's 16.6 million euros earned last year.  The net losses also widened to 70 million euros from only 26.5 million euros a year earlier.  "Terra seems to have decided that being the Spanish-language leader isn't enough in an English-speaking Internet world." (pp. A3)

Lycos:

Even though Lycos is a well-established brand name it is still not even close to the U.S. market-leading Yahoo! Inc.  Lycos is the fourth-biggest Internet portal in the U.S.  Lycos Inc. has a 43% stake in Lycos Europe NV and a presence in leading markets such as Germany, France, and England.  "While Lycos is already present in Latin America's leading Internet markets, analysts say it could only benefit from a link-up with the dominant player." (pp. A3)  Lycos not only has more experience in the U.S. market.  It also has better e-commerce partners than Terra and is better at translating high visibility into advertising revenue, said Mr. Van Hammel Platerink.
 

Conclusion:

This article is a good example of the World-Wide Presence Model.  If Lycos and Terra would combine they would become part of the Global portion of the model.  I feel it is Global because they will be sending the same product across countries with little change other then the way they may present it.  So it will have a low local responsiveness and a high concern for cost.  Lycos and Terra have a low local responsiveness because they provide one product or one service.  I think it is a good business measure to join because they have great assets  to give to each other.  This will give them more opportunities to compete with say Yahoo.  I think this was a great idea and could also be a great investment.  After further research of the topic of them merging I found information saying the the merge was complete and they were now one company.  This information was found on the interactive Wall Street Journal.

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