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Terra Networks up on Lycos deal

Terra Networks SA (Nasdaq: TRRA) was up over 14 percent in early trading Monday after the Spanish Web portal completed its takeover of Lycos Inc. (Nasdaq: LCOS).

Shares of Terra climbed 2.81 to 21.94.

Lycos shareholders gave the green light to the deal on Friday, clearing the way for the creation of a new company to be called Terra Lycos. The $4.6 billion deal will create the world’s third largest Internet service provider.

The merger, originally valued at $12.5 billion when first announced in May, is now worth less than half its original value on account of the recent pummelling of technology stocks.

Terra, the Internet arm of Spanish telecom giant Telefonica, will acquire the U.S. Web portal in a stock acquisition, distributing 2.15 Terra shares for each Lycos share. Shares of the new Terra Lycos are expected to begin trading on Tuesday.

The new company will join Terra's Internet assets in Spain and Latin America with Lycos' presence in the United States giving it the largest global footprint of any Internet company.

Both European and American regulators have already approved the deal.

Analyst reaction to the merger was positive.

ABN-Amro maintained a “buy” rating on the Lycos stock. Analyst Arthur Newman expects an earnings per share growth rate of 50 percent over the next 3 to 5 years. He puts the 12-month target price of the stock at $70 and sees EPS of 72 cents for the 2001 calendar year.