News Column

Wrestling for Web Dominance

Aug 1 2000 2:00PM

Global consolidation is the byword for Hispanic-targeted Internet sites.

By Vaughn Hagerty

For Hispanic-targeted Internet firms, the first half of 2000 has all the makings of a professional wrestling brawl. Several players were in the ring when the first bell rang; some are pairing into teams to increase their chances of survival. And while some will be left standing when the year is out, it is highly likely that for the second half of 2000, the field will be much less crowded and those that do remain will be bigger, stronger, world-class contenders, better positioned than before to take on leading roles in the global marketplace.

An early favorite in this battle is Terra Networks (Nasdaq: TRRA), the Spanish telecommunications giant, which ratcheted up the portal business several notches in its bid to purchase Web pioneer Lycos (Nasdaq: LCOS). The proposed $12.5 billion takeover of Lycos would create an entity with a truly global reach. Lycos is a major player in the United States and has some presence in Latin America. Terra has a large footprint in the European and Latin American marketplaces. Together, they would wield remarkable clout.

These developments have some analysts turning their eyes on StarMedia Network Inc. (STRM), considered by most to be the top Latin American portal, with critical first-mover status. Indeed, in the weeks leading up to the Terra-Lycos announcement, rumors circulated that Terra was eyeing StarMedia as a potential acquisition. Although that apparently has not panned out, the changes wrought by Terra-Lycos and the stock market valuation of StarMedia (trading around 20 in late spring, a dizzying drop from a high of 70 just a year earlier) have many observers discussing it as a potential purchase or merger target.

"The first reaction of the market [to Terra-Lycos] was to lower the price on StarMedia," observes Leo Guzman, president and founder of Guzman and Co., an investment bank headquartered in Miami. "It had been rumored that StarMedia and Terra were in conversations. We feel that [the Terra-Lycos deal] is in fact a positive development for StarMedia. There are a lot of people who are interested in becoming the leading portal in Latin America. While it's true that a standalone StarMedia will have to run very fast and very effectively to remain the leading portal, it remains in an attractive position to a lot of companies."

For his part, StarMedia CEO Fernando Espuelas has insisted that his company is well fortified against the Terra-Lycos threat. "They spent about $1 billion to catch up to us, and they've reached about 60 percent of our traffic and about 30 percent of our revenue," Mr. Espuelas said in a televised interview. "So I'm not really sure how you get beyond that. Do you have to spend $5 billion to get to 80 percent of our size?"

The coalescing of the Latin American- and Hispanic-targeted Internet market likely will continue, but it will not necessarily be driven by U.S. financial markets, according to Chris Hussey, vice-president of Media and Internet Research for Latin America at Goldman Sachs.

"Many of the companies in Latin America are very well capitalized," Mr. Hussey said in an interview from São Paulo, Brazil. "Some of the strongest horizontal portals in the region are portals that are connected with large media or telephone companies that have access to have a great deal of capital, which makes it unlikely for them to come into any cash crunch that would force consolidation."

Meanwhile, the financial markets have been especially unkind to other currently and potentially publicly traded Hispanic-targeted sites. (Nasdaq: PASA), whose stock already had been troubled, was hammered by the April Nasdaq downturn, and it has not recovered, hovering between 1½ and 2 in late spring. At the end of May, the company announced that it had secured the services of investment banking firm Friedman, Billings, Ramsey & Co. to pursue options, including possible sale of the company.

"I think has pretty much thrown in the towel," says Mr. Guzman.

Miami-based Yupi Internet Inc., which operates a number of sites, including the popular, announced in April that it was postponing its planned initial public offering. Yupi had hoped to raise as much as $172.5 million with the IPO.

Source: Hispanic Business magazine

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