Earnings help Lycos interrupt post-merger slide

Lycos reported fiscal third quarter results above estimates
Written by Larry Barrett, Contributor

Lycos shares, still reeling from a post-merger hangover, moved up 4 37/64, or 8 percent, to 62 3/16 Thursday, one day after it topped analysts' third-quarter earnings estimates by 2 cents a share.

On Wednesday, the Internet portal's stock tumbled more than 20 percent as analysts had decidedly negative comments regarding its proposed $12.5bn (£8.44bn) merger with Terra Networks.

In the quarter, Lycos earned $7.9m, or 7 cents a share, on sales of $78.6m. First Call consensus expected it to earn 5 cents a share in the quarter.

Lycos shares rallied earlier this week after the two companies announced a deal that would essentially combine a second-tier portal with a second-tier Internet service provider.

On Thursday, Robertson Stephens analyst Michael Graham raised his fiscal 2000 earnings estimate from 16 cents a share to 20 cents a share and reiterated his "buy" recommendation.

"Lycos reported fiscal third quarter results above our estimates," Graham said in research note. "Many investors appeared to believe the proposed merger with Terra Networks would not close, but we believe it will. In our view, the combined company would have a valuation in line with well-established peers, suggesting to us the need for significant upside to the combined model to achieve continued stock momentum."

Graham remains in the minority among analysts as several downgraded the stock following the merger announcement.

The new company will be called Terra Lycos. Bob Davis, the president and CEO of Lycos, will be CEO of the combined firm. Juan Villalonga, chairman and CEO of Telefonica, the Spanish phone giant that owns Terra Networks, will serve as chairman, the sources said.

At the completion of the deal, Lycos shareholders will have a 37 percent stake in the combined company.

As part of the deal, Telefonica has committed to underwrite a $2bn rights offering by Terra before the merger closes. Sources said Terra Lycos expects to have more than $3bn in cash after the offering.

The companies said they will be able to generate pro forma 2000 revenue of about $500m with a combined 50 million unique users and 175 million page views per day.

Terra Lycos will have operations in 37 countries, with leading positions in multiple high-growth markets in North America, Latin America, Asia and Europe.

Lycos shares closed at a 52-week high of 93 5/8 in December before falling to a low of 28 9/16 in April. Sixteen of the 20 analysts covering the stock rate it either a "buy" or "strong buy."

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