In an Internet first, a European company, Terra Networks, (based in Spain) is to merge with Lycos in a stock-swap deal valued at $12.5 billion. The goal is to create an Internet company with a global reach.

As part of the merger, Terra Lycos has entered into a strategic relationship with German media company Bertelsmann, which has agreed to a five-year advertising, placement and integration services deal with the merged company.

New customers The deal gives Lycos a stronger presence in the burgeoning Spanish-speaking online world. Bob Davis, Lycos’ CEO, claims the deal gives the company 550 million potential new customers in the Spanish-speaking world.

Terra Chairman Juan Villalonga, who is also chairman and CEO of Telefónica, the telecommunications parent of Terra, said the merger will create a company capable of competing against Internet giants such as America Online (AOL). "We don't like to compare ourselves with other companies," Villalonga said. "But we can say that starting today, AOL is a competitor."

Terra Lycos will own 49 per cent of a new wireless joint venture being established in an alliance with Telefónica, the companies said. Terra Lycos will also gain access to Telefónica's cable, fixed-line, broadband, satellite and wireless networks, which serve more than 60 million customers.