Terra to sell Lycos unit for $95m
Four years after being bought by Spanish owners for $12.5 billion, the Lycos Inc. Internet operation formerly based in Waltham is now set to be acquired for just $95 million by a South Korean company.
Daum Communications Corp., a leading operator of Korean websites with more than 35 million registered users, called the deal "a springboard for our company to venture into the US Internet market and become a global player."
Those words virtually echoed the rationale expressed by Terra Networks SA, the Internet arm of Spain's main telecommunications company, when it bought out Lycos in May 2000, at the crest of the dot-com boom. But Terra has since written off all of the acquisition premium, and has made little headway promoting Lycos as a serious threat to dominant web operations such as Microsoft Corp.'s MSN, Yahoo Inc., or Time Warner Inc.'s America Online service.
Lycos's Internet search engine rivaled Yahoo in the mid-1990s. But in recent years it has slipped to a distant seventh among web portals and sites, ranked by visitors. It has 170,000 paying users for premium versions of its personal website-building services such as Tripod.com and Angelfire.com and its investor-research site RagingBull.com, according to data released yesterday by Daum.
Charlene Li, an Internet market analyst with Forrester Research, said the deal suggested that Telefonica and Terra "are willing to unload it to get anything back at this point. They probably see Lycos US as a distraction. When Terra bought it, even then back at the height of the bubble, we were scratching our heads looking at the valuation."
The $12.5 billion Lycos purchase price negotiated by former Lycos chief executive Bob Davis is usually cited as one of the most extraordinarily lucrative deals of the dot-com era in New England, particularly as it came just months before the Internet investing frenzy collapsed. Davis, now a top venture capitalist at Highland Capital Partners in Lexington, declined to comment yesterday on the sale to Daum.
Li said Lycos still has some value. "People still use it for search, and they still have an advertising market," he said.
Hyundai Securities analyst S.T. Hwang called the price "reasonable," but noted: "Whether Daum will benefit from the buyout depends on whether synergies could be found."
Daum reported late last year having more than 35 million registered e-mail users and 6 million online shopping subscribers.
Terra said in a filing with Spanish securities regulators that Daum is paying a total of $105 million, which includes Daum assuming $10 million worth of real-estate lease guarantees for Lycos's US operations.
The purchase price is barely half of the $170 million Terra said in April it hoped to raise when it hired Lehman Brothers to put Lycos on the auction block. Terra is keeping Lycos's European portal business, as well as its own Terra Networks USA portal serving Spanish speakers in this country. Daum said it will fund the purchase with $60.1 million in cash on hand and by selling a bond.
Lycos continues to employ about 200 people at its Waltham campus, having cut more than two-thirds of its worldwide staff since 2000.
Peter J. Howe can be reached at howe@globe.com. Material from Globe wire services was used in this report.
