Terra Lycos in fear of a stock meltdown

Investment bank Nomura is "likely" to downgrade Terra Lycos's stock after the exit of its CEO Bob Davis yesterday. This follows a similar decision from ABN Amro and a continued share price fall.

Its stock slumped six per cent during trading today. Nomura currently rates Terra Lycos as a "buy", but Daniel Bieler, internet analyst at the bank, said the company was likely to downgrade it to a "halt" because of the management bust-up which saw Lycos founder Bob Davis resign his post, taking CFO Ted Philip with him. The difficult period for the portal was made even worse today when it emerged that Terra Lycos is being sued by US telco IDT to the tune of $6.7bn over the Terra Networks - Lycos merger. Reports from Reuters say IDT claims the deal between Terra and Lycos - finally consummated at the back end of last year - breached an earlier agreement between it and Lycos. Neither companies have so far been able to provide spokespeople to confirm the reports. Terra Lycos is the result of a combination between US portal Lycos and Terra Networks, the internet business of Spanish telco Telefonica. The deal was the brainchild of Telefonica boss Juan Villalonga and Bob Davis, the man who took Lycos from a one-man company to an international portal. Villalonga is rumoured to have promised stewardship of the combined company to Davis at the time of the deal. However the departure of Villalonga from Telefonica, last July led to immediate speculation as to who was in control at Terra Lycos. It seems that battle was finally decided by the departure of Davis and Philip yesterday. Daniel Bieler said: "This has been on the cards since since Villalonga resigned. It is a very tough decision to downgrade the stock, because they are still a great company, but you shouldn't kick out the man who can do the job. Sentiment has clearly turned against them." The departure of Davis leaves Joaquim Agut - currently executive chairman - in charge of the firm. Bieler added: "Agut is an unknown quantity, and is still very much to prove himself." Olivier Beauvillain, analyst at Jupiter MMXI, said Terra Lycos will face some stiff challenges: "Lycos has made a lot of acquisitions, and has many culture clash issues to deal with - this is really the first time a European internet company has taken over a US one."