February 1, 2001 10:15 AM PST

Davis leaves as Terra Lycos CEO

Terra Lycos confirmed Thursday that Chief Executive Bob Davis is stepping down amid a top-level management shake-up.

The company, which topped estimates for the fourth quarter, said it was comfortable with first-quarter targets but was mum on the outlook for fiscal 2001.

Investors have become increasingly skittish about Terra Lycos as several competitors are warning of rough times ahead. In many ways, the management shake-up couldn't have come at a worse time. Terra Lycos, formed from the merger of Spain-based Terra Networks and U.S. portal Lycos, is only 3 months old and faces a tough market environment.

The company reported a fourth-quarter loss of 17 cents a share on sales of $164 million. Earnings tracking company First Call said analysts had projected a loss of 22 cents a share on sales of $151 million.

Executives said the company was comfortable with consensus estimates for the first quarter. According to First Call, the company is expected to lose 14 cents a share on sales of $177 million. However, Terra Lycos executives said they couldn't predict 2001 results because of "softness in the market."

In the shake-up, Davis will step down as CEO to become a nonexecutive chairman at the company. He also will become a partner at venture capital firm Highland Capital Partners. Chairman Joaquim Agut will take the reins at Terra Lycos. Chief Financial Officer Ted Philip will become vice president of strategic planning and mergers and acquisitions. Elias Rodriguez-Vina will replace Philip as CFO.

On a conference call with analysts, Davis said reports of a rift between him and Agut were overblown but noted that having two top executives doesn't work well in practice.

"This is a day that holds a lot of mixed emotions for me," said Davis, who reiterated that he will still be involved in strategic planning for the company.

Davis' tenure was marked by his signature scrappiness that turned an obscure Web search engine developed at Carnegie Mellon University into a new media company. As the first employee at Lycos, Davis also shepherded the company through times of turmoil, from a failed merger with USA Networks to the collapse of Internet companies' high-flying status on Wall Street.

The rise of Lycos was largely marked by Davis' growth-at-all-costs attitude that kept the company afloat despite difficulties in competing in the Web portal sector. Much of the company growth was fueled by acquiring smaller Web companies such as Wired Digital, Quote.com, Sonique, Gamesville and this week's purchase of Raging Bull.

But over the past couple of years, leaders such as Yahoo, America Online and the Microsoft Network (MSN) have become bigger and have increased their leads. The stragglers either have thrown in the towel or have turned their attention from competing with the top players. Just this week, Walt Disney said it would shutter its Go.com Web portal and lay off 400 employees.

Just when it seemed Lycos would also fall into the turmoil that struck second-tier portals, Davis sold the company to Internet service provider Terra, a subsidiary of Spanish telecommunications giant Telefonica. Given Terra's dominance in the developing Latin American region, the acquisition was viewed as a possible answer to AOL's megamerger with Time Warner. German media giant Bertelsmann pledged to buy nearly $1 billion in advertising on Terra Lycos and supply the company with content.

But a rift soon developed among top executives. When Terra and Lycos merged, former Telefonica Chairman Juan Villalonga forged a power-sharing pact with Davis. However, Villalonga was ousted in a boardroom coup shortly thereafter, and Davis reportedly had differences with Agut, the man Telefonica appointed chairman of Terra.

see special coverage: Lycos bought in billion-dollar deal Davis' tenure at Terra Lycos has had its pluses. In October, he sold more than 3.45 million shares in a transaction valued around $72 million at the time, according to regulatory filings. In November, Philip cashed in shares in a transaction valued at $6.5 million.

As for the future of Terra Lycos, Agut has a lot of raw material to work with. Terra Lycos has $2.4 billion in cash, a strong partnership with Bertelsmann and a seemingly prime position as a global Internet player.

Page views rose 227 percent from the previous year to 350 million average daily page views in December. Subscribers increased 336 percent from the previous year to 6.1 million in December. In addition, Terra Lycos' joint venture with Telefonica Moviles, Terra Mobile, has more than 3 million registered customers.

But there were a few problems in the quarter. Of Terra Lycos' revenue, $121 million derived from the company's media business. That figure was below Goldman Sachs' projections of $127 million. Internet access revenue was $42 million, a bit higher than projections. Philip said Terra Lycos was not emphasizing free access and moving customers to the subscription model.

For the year, Lycos reported a loss of $348 million, or 67 cents a share, excluding charges on sales of $398 million.

Agut's biggest job will be selling the company's new management team to Wall Street. Analysts questioned who would be watching Terra Lycos' portal operations since the company's top executives will be in Madrid.

The company said it will be reorganizing its portal operations. Agut said the fourth-quarter and first-quarter results will speak for themselves.

"Our strong financial performance this quarter lends credibility to this merger," he said. "The most important thing is that everyone will be accountable for every single thing.

"This machine will be working in a perfect way."

 

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