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Technology Stocks : Lycos -- Ignore unavailable to you. Want to Upgrade?

To: Rajiv who wrote (2424)	5/27/2000 6:36:00 PM
From: Captain James T. Kirk	Respond to of 2439

Barrons 5/27/00- Briefly, Terra bid $97.55 a share for Lycos, to be paid in Terra stock. As long as Terra trades between 45 and 68 the deal is firm. If it trades below 45, Terra issues 2.15 shares for each Lycos share; if above 68, Terra issues 1.43 shares. With Lycos trading in the 50s, McMillan says, "this looks like a great time to buy Lycos." Why? Scare stories that Lycos' shareholder CMGI will put the kibosh on the deal are just that. Moreover, Terra put options are expensive, as good a clue as any that arbitrageurs are betting on the deal's eventual success. (For disclosure, McMillan is long Lycos stock.) "As long as Terra puts stay expensive, and Lycos call options do the same, then the arbs are 'saying' this deal will go through," McMillan points out. Finding the right strategy is tough, although the one he likes best is to buy Lycos stock and protect it with Terra puts, such as the September 30 strike. Here's McMillan's caveat emptor: If the deal goes through, you make money as long as Terra is above 33. If the deal blows apart, you could lose more than half your money. "If you're uncomfortable with the risk, then don't take this trade." ___________________

To: Rajiv who wrote (2424)	6/3/2000 11:21:00 AM
From: Rajiv	Read Replies (1) \| Respond to of 2439

From Barron's Online - interactive.wsj.com Lycos' Low Price Suggests Terra's Is Too High By Vito J. Racanelli A plausible bunch of explanations has been put forth for the strangely muted reaction of Lycos' share price to a bid for the company by Terra Networks, a Spanish Internet service and content provider controlled by Telefonica. As valid as the explanations are, the combination of these factors has to a great extent obscured the most important red flare coming from the action in Lycos, a large and well-known Web portal: that Terra shares remain overvalued, even after their 65% drop from February highs amid the carnage in Internet shares. At Friday's close of around 71, Lycos shares sit far below the $97.55-a-share stock-swap bid made for them by Terra on May 16. From the pre-bid level of around 54, you'd expect Lycos would have jumped nearer the offer price. Technical factors do account for some of that discrepancy, but not nearly all of it. For one, Terra isn't a very liquid stock; the actual public float of outstanding shares amounts to a skimpy 14% of the total. That's a very limited pool of shares available for borrowing by arbitrageurs, and few are lending anyway. For all intents and purposes, then, arbs cannot short Terra and buy Lycos, the typical play in such a deal, gumming up the works a bit. Second, some U.S. investors mightn't want or be able to hold Terra's ADRs. Third, some execution risk comes from the fact that CMGI -- which holds about 12% of Lycos and scuttled a previous Lycos merger -- hasn't officially weighed in on the deal yet. These are all important factors, notes Frederick Moran, an analyst at Jefferies & Co., but "a big part of it is the concern that Terra may be overvalued." While it's difficult to quibble with the strategic fit of these two companies, it's worth pointing out how differently Terra is being valued by U.S. investors pricing the deal through different eyes; that is, shares that are far more liquid than Terra's. Sure, the deal would bring together the U.S. and European operations of a top-five Web portal like Lycos with Terra's fast-growing Spanish and Latin American Internet access and content business. And it creates a company with improved global aspirations, to be sure, though it still wouldn't be in the same league as AOL/Time Warner or Yahoo. But Lycos trading says Terra's paper is too richly-priced in a market that is uncertain of Internet valuations. Let's compare Terra and FreeServe, a U.K ISP and portal that is currently the focus of buyout speculation in Europe. Even after FreeServe's price recently jumped some 40% in a week, its market capitalization values it at roughly 4,200 euros per subscriber, not even close to Terra's E5,700 valuation. Now Terra, with its strong position in Latin America, is pitched as a play on the region's growth. FreeServe doesn't offer that, but even using estimates of Terra's subscribers further down the line in 2002 gives it a valuation far above most European competitors except for Deutsche Telekom's T-Online. Indeed, Jefferies' Moran points out that on some valuations Terra is closer to Yahoo-a proven global leader with a dominant brand and none of the lower-margin ISP business that Terra has-than more similar peers. And, as one institutional investor who declined to be identified put it, "They've just massively diluted that growth" by adding the larger but slower-growing Lycos. Moreover, the Lycos-Terra integration will divert management attention just as competition on its home field is heating up, others add. Terra's valuations are simply "way off the scale" in comparison to most other European peers, concludes Stephen Peak, a portfolio manager at Henderson Investors in London. A better price signal about Terra-Lycos post-merger is coming from Lycos shareholders than from Terra stock itself, he adds. Lycos shares may yet approach the deal's value if the market warms up to Internet stocks again. But right now, the market is saying Terra-Lycos is likely to trade in the mid-30s and not the mid-40s, where Terra ADRs now trade.