Terra Networks begins US$2b IPO before Lycos merger
By Bloomberg, Singapore.CNET.com
Wednesday, August 30 2000
MADRID--Terra Networks SA, the biggest Internet company in the Spanish- and Portuguese-speaking world, began the sale of US$2 billion in new stock today that will pave the way for its US$12.5 billion takeover of Lycos Inc, one of the three biggest Internet search services.
Telefonica SA, Spain's biggest telephone company and owner of 67 percent of Terra, will probably buy all the 35.5 million shares on offer. At the time of the May 16 takeover announcement, Telefonica said it would carry out the rights offer at 62 euros a share and buy any stock not taken up by shareholders. They are unlikely to buy the new shares as Terra is trading at 25 percent below the sale price, analysts said.
The share sale will contribute to a US$3.2 billion cash pile that Terra-Lycos is building to fund future acquisitions after the merger is completed in October. Terra-Lycos will try to use acquisitions to dominate the 39 markets where it operates, Lycos Chief Executive Bob Davis has said.
"The share sale isn't to finance the purchase of Lycos; it's to capitalize the new company so that it has sufficient resources to continue it policy of expansion, acquisitions of new portals and consolidation of its marketing campaign," brokerage Ibersecurities said in a note to investors.
When Telefonica announced the Lycos takeover in May, Terra shares were trading near the 62 euro level. Since that time the shares have fallen as much as 43 percent.
Share Swap
Terra offered to swap as many as 2.15 of its shares for every Lycos share, valuing the offer at US$97.55 a share. That maximum value will hold as long as Terra's US-traded shares are above US$45.40. The share are currently trading in the US at US$36.50, making the offer worth US$78.50 per Lycos share.
The Waltham, Massachusetts-based company will ask shareholders to vote to accept the takeover by Terra at a meeting in October. Davis said earlier this month that the offer period to carry out the share swap would begin in the last week of September and conclude by the end of the third week of October.
Banco Bilbao Vizcaya Argentaria SA, Goldman, Sachs & Co, and InverCaixa Valores SVB are managing the current Terra share sale. The share sale concludes on September 12.
Terra shares in Spain rose 1.95 euros, or 4.4 percent, to 45.9 euros, their highest in more than a month. Lycos rose US$1.63, or 2.5 percent, to US$67.44.
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