Should Lycos fans say adios to an American dot-com bought by a Spanish conglomerate?
No way, Jose.
International business experts say the new Lycos will be a cross between the free-wheeling culture of American dot-coms and the more button-down feel of its European parent after the Waltham, Mass.-based Web portal is fully absorbed by Terra Networks and its Spanish parent company, Telefonica.
The Madrid-based Internet service provider announced plans Tuesday to acquire Lycos for $12.5 billion in stock.
Business consultants and academics are eagerly watching the development of Terra Lycos, as the new company will be named, as managers undertake the prodigious task of melding disparate cultures of the Spanish telecommunications giant and the American dot-com. Expected to close in the third quarter, the deal may set a pattern for a spate of multinational mergers and acquisitions of Internet companies expected this year.
Terra Lycos will span 37 countries on four continents, dominate the emerging Spanish-language Internet market, and invest heavily in the developing countries of Asia. But international business experts say the company will retain the essence of an American Internet company.
Terra Lycos will be based in Waltham, Mass., with Lycos chief executive Bob Davis and chief financial officer Ted Philip remaining in their posts. Telefonica chairman Juan Villalonga will be chairman of the combined company.
It's unclear whether Terra Lycos, which inked the acquisition in New York's Four Seasons Hotel, will have annual meetings and board meetings in New England, Spain or a neutral locale. Other cultural details, such as an official corporate language, also have not been determined.
But America's dominance of the Internet is likely to spill over into the Terra Lycos deal. English is the dominant language of the Web. According to some estimates, U.S. corporations collect 85 percent of global revenues from Net transactions and represent 95 percent of the global value of Internet companies.
"There's been so much American domination of the Internet, I'd bet that the official language will be English, and Terra Lycos will act more like an American company," said Don Heath, president and CEO of the Internet Society, an 8,600-member organization based in Reston, Va., focused on global Internet standards, education and policy issues.
But Terra Lycos won't look exactly like the Lycos of today. Although executives would not comment on the deal, which is contingent upon shareholder approval, integrating Spanish and American cultures will likely create a unique identity for the company.
at a glance
HQ: Waltham, Mass.
CEO: Robert Davis
CFO: Edward Philip
Annual sales: $136 million
Annual income: -$52 million
Date of IPO: April 1996
Lycos message boards
European Internet companies are generally run by seasoned executives--men who are older and more experienced than their American counterparts. Many of Europe's largest Internet operations stem from traditional businesses, run by management teams with decades of experience.
The European equivalent of Amazon.com--Bol.com--is owned by German media giant Bertelsmann and managed by 53-year old business veteran Heinz Wermelinger. Europ@Web, a Paris-based Internet incubator and holding company, is run by Bernard Arnault, the 51-year-old chief executive of the luxury goods conglomerate LVMH Moet Hennessy Louis Vuitton, purveyor of rarefied luxury goods by Louis Vuitton, Christian Dior, Tag Heuer and Dom Perignon.
Experts say Terra Lycos isn't likely to become a stuffy, old-world stalwart but instead a new-economy juggernaut, given that Telefonica targets the explosive Latin American market. Analysts predict the number of Internet users in Latin America to jump sevenfold by 2003--and that's not counting Latinos in the United States, the nation's fastest-growing minority group.
But Terra Lycos also faces significant, short-term challenges--most notably the integration of two business cultures. Several investment firms downgraded their ratings on Lycos yesterday from "buy" to "hold," based largely on concerns that the new company will face difficulties in absorbing the American upstart.
"How do you keep this innovative, technologically embedded expertise in the new organization, given the job market, and manage that across barriers of distance, time, language and culture?" asked Christopher Bartlett, professor of business administration at Harvard Business School and an expert in multinational corporations.
"Layer on top of that a couple of radically changing business models--both the Web portal and ISP models are changing radically--and in terms of degree of difficulty, this is a 9.5," Bartlett said. "It's a tremendous challenge."
Fred Kiesner, professor of entrepreneurship at Loyola Marymount University in Los Angeles, said naysayers are making too much of the cultural divide.
"Yeah, there will be some misunderstandings and glitches. But so what? Smart management will work it out," Kiesner said. "This is how technology companies will look in the future. Try to find me an auto company that is totally Japanese or American. We're all intermixed now, and the dot-com businesses are just catching up."