Telefonica Makes $2B Terra Lycos Bid

Spanish telecom Telefonica is offering $2.04 billion cash for the 62 percent of Terra Lycos it does not already own, saying the Internet unit will perform better in-house than as an independent company.

The deal, which must be accepted by at least 75 percent of Terra Lycos shareholders, would allow Telefonica to more tightly integrate Terra Lycos’ broadband products and services with its Internet access business.

Service providers increasingly see bundled offerings as a key to retaining current subscribers and winning new ones and have been partnering with content providers.

The combination would also save the company overhead of operating a stand-alone publicly traded company, Telefonica said.

Terra Lycos, which has U.S. operations in Waltham, Mass., has not commented on the offer. A spokeswoman did not immediately return a phone call.

For the last two years, Terra Lycos — which runs a network of content sites (paid and free), offers Web site building tools, and search services — has been buffeted by the poor economy, online advertising slump and fierce competition.

“Telefonica has actively managed this changing and increasingly demand environment, adapting contuinously to the changes,” the company said in a statement.

It also noted its financial support for Terra Lycos during the rough stretch. Most notably, Telefonica committed $500 million over six years deal for portal and other Internet services from Terra Lycos.

The pact plugged a gaping hole left by Bertlesmann. Last year, the German music and content giant rethought its $1 billion advertising commitment to Terra Lycos after the market soured.

Terra Lycos has been working to transition its visitors (50 million per month for all its sites) to paid services. For example, in April it unveiled a new version of its Quote.com investor site, offering real-time market data and online trading tools starting at $79 per month.