Reuters Finance News
Terra Lycos Eyes EarthLink or CNET Buy
May 10 1:46pm ET
By Eric Bovim
MADRID (Reuters) - Spanish Internet group Terra Lycos is in acquisition talks with U.S. service provider EarthLink and content portal CNET Networks Inc, sources close to the negotiations said on Thursday.
Terra Lycos -- which said this week it was in talks for U.S. acquisitions -- would have the financial muscle to buy only one of the two companies in a deal that could be worth more than $1.5 billion, the sources said.
A preliminary agreement could be reached in the next few weeks, with an announcement to follow before the end of the summer, the sources said.
At 1735 GMT, EarthLink shares were up about 3.7 percent at $13.22 and CNET was about 8.8 percent higher at $12.70.
Terra Lycos, which closed down 2.1 percent on the Madrid bourse and has halved in value since late January, was down 1.4 percent at $8.60 on the U.S. Nasdaq.
One source with close links to Terra Lycos -- one of the world's largest Internet companies -- said it was more likely to bid for EarthLink, the second biggest U.S. Internet service provider.
That would add 4.8 million subscribers to Terra Lycos's customer base in the United States where it has said it wants to be a top player.
Terra Lycos has already had contacts with top executives of both the potential target companies. Spokesmen for all three companies declined to comment.
BUYING SPREE
Terra Lycos was formed last October when Spain's Terra Networks bought U.S.-based search engine Lycos and analysts have been waiting for the company to use its $2.2 billion war chest to embark on a buying spree in the United States.
Its aim is to compete against much larger rivals like AOL Time Warner Inc. and Microsoft Corp.'s MSN Internet service. Such a move would come at a critical time for Terra Lycos as Executive Chairman Joaquim Agut is trying to re-inspire U.S. investors who fled after Wall Street darling Bob Davis stepped down as CEO in February.
Sources have said Agut's job may be on the line unless he can turn the money-losing company around.
One of the sources close to the current talks said Terra Lycos has been studying several possible deals for the past few months and settled on EarthLink and CNET as the best candidates.
Stephen Killeen, head of Terra Lycos's U.S. operations, told Reuters on Tuesday the company was actively and aggressively in acquisition talks with a variety of U.S. players, but stopped short of giving names.
Agut has been evaluating CNET for at least two months, one of the sources said. This person also said a deal for EarthLink would likely result in a full takeover while a play for CNET would involve retaining the current management team.
"The question now is if (Terra Lycos) will be able to negotiate the deal it likes with either company," one of the sources said.
EARTHLINK KEY
EarthLink has a strong balance sheet and plans to break even by the end of this year. The Atlanta-based company has 4.8 million paying subscribers.
"Anyone who wants to compete with AOL Time Warner has to buy EarthLink," said Frank Gristina, an analyst with Robinson-Humphreys in New York.
"The dialup market is maturing and there is not enough organic adds to allow anyone to catch up to AOL. They have to buy consolidated subscriber bases."
MSN has been trying to wrestle away the number two ISP spot in the United States from EarthLink, which analysts have seen as a takeover target.
Terra Lycos's U.S. operations contribute almost 70 percent to its overall revenues which are heavily reliant upon advertising. The slowdown in the online ad market has hurt Terra Lycos and first quarter revenues slipped six percent from the previous quarter.
San Francisco-based CNET offers technology news and information. Many in the industry see the company as one of the few survivors in the Internet media sector because of its diversified revenue base that includes licensing to corporate customers. |
