Talk of an agreement has appeared in the Spanish media since Telefonica Publicidad e Informacion, Telefonica's phone directory unit, agreed to exchange services with the Waltham, Mass.-based company two months ago. An alliance would give Lycos Spanish-language content and Terra better access to Hispanics in the United States.
"If it were to go ahead, Terra would become a global player, though people must not jump to conclusions," said Peter Bradshaw, a Merrill Lynch analyst. "Everybody is in talks in the Internet industry."
In a statement to stock market regulators, Terra said it's "holding talks with Lycos, though as of today no definitive agreement has been reached that merits being made public, and there's no assurance such will happen."
Lycos' European arm denied any involvement. A representative said: "Lycos Europe and Terra are not in talks. We don't know anything about Lycos and Terra--we can't comment on that."
Terra shares rise
Although Terra's revenue of $33 million in the quarter ended Jan. 31 is less than half that of Lycos for the same period, its market value of 18 billion euros ($16.2 billion) is almost three times that of the U.S. company.
Shares in Terra rose as much as 4.1 euros ($3.71), or 6.5 percent, to 67.6 euros ($61.13) after gaining 7.6 percent yesterday. Lycos rose 19 percent in U.S. trading yesterday.
Terra, which is owned by Telefonica, Spain's largest telephone company, finished the first quarter with almost 2 million subscribers. About half its clients are in Spain, and most of the rest are in Latin America, where Lycos has been trying to expand its business.
Spanish financial daily Expansion reported today that in recent weeks Terra and Lycos have stepped up alliance talks that could lead to merging some of their businesses.
"If it goes ahead, there are two scenarios: Either it's a light agreement like TPI-Lycos, or it is a broader agreement with exchange of stakes," said Luis Padron, an analyst at Banesto Bolsa. "I think the second possibility is the good one."
Terra also said today its revenues more than doubled to 37 million euros ($33.5 million). Subscribers rose 50 percent from the fourth quarter and about sixfold from a year ago.
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