Cesar Alierta, the chairman of Spain's Telefonica, ruled out for the moment a merger between the company's Internet arm Terra Lycos and its yellow-pages directory TPI.
Alierta told journalists on Thursday that the existing situation of those companies is "perfect" and that there is no need to go ahead with a merger.
Since the beginning of this year, the markets have been awash with rumors that Telefonica has decided to force a merger between the companies to boost revenue at the advertising-dependent Web unit.
A merger of the two publicly traded companies could add roughly 60 percent to Terra Lycos' revenue, which is expected to be somewhat below $700 million this year. TPI is expected to bring in about $400 million in 2001. The merger also seemed to make sense for TPI, because the phone directory would benefit from Terra Lycos' traffic and e-commerce offerings. Gaining access to the portal's 94 million unique visitors would enable TPI to raise its advertising fees substantially, analysts said.
Once third-generation wireless phones with rapid voice, data and video delivery take hold, analysts said, the combination of Terra Lycos' content with TPI's services would make for a compelling online offering to mobile-phone users.
Europe has seen a string of mergers among directory services, Internet portals and ISPs.
Last year France Telecom spun off its Internet unit, Wanadoo, which groups its phone directory and ISP. In Italy, Seat Pagine Gialle, a phone-directory company, merged with Telecom Italia's Internet unit Tin.it.
But the markets have been well aware of the difficulties of carrying out such deals. Rumor had it that the management of TPI was unhappy with the prospect of relinquishing control to the management team at Terra Lycos.
Telefonica is the biggest board member of both companies. It owns 60 percent of TPI and 35 percent of Terra Lycos and was expected to use its weight to move the merger forward.
Last week, Terra Lycos CEO Joaquim Agut said the Internet company would seek new revenue streams by offering more paid content.
Agut said Terra Lycos' April EBITDA (earnings before interest, taxes, depreciation and amortization) margin was showing rapid improvements over the first quarter of the year. In April, the company had an EBITDA margin of minus 38 percent, whereas in the first quarter it was minus 43 percent. Terra Lycos predicts that it will finish 2001 with an EBITDA margin for the year of minus 30 percent to minus 34 percent.
Agut also told reporters that the company might use part of its war chest of roughly $2.4 billion to acquire content verticals in the U.S. market, where it ranks behind Yahoo, AOL and MSN. But he said Terra Lycos would go after only cash-positive companies that can contribute immediately to Terra's bottom line.
