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The transaction, which will be paid for in Terra stock, will create a new company called Terra Lycos, with operations in 37 countries.

Terra, which is currently 67 per cent-owned by Spanish telecom group Telefonica, provides ISPs and local-language content in countries including Spain, Mexico and Brazil. Lycos provides content in 25 countries, including 11 European countries through Lycos Europe, a joint venture with media group Bertelsmann.

Juan Villalonga, chairman and CEO of Telefonica and chairman of Terra, will act as chairman of Terra Lycos and Bob Davis, president and CEO of Lycos, will become chief executive officer of Terra Lycos. The board will have 11 members from Terra and three from Lycos. The transaction is expected to be completed in the third quarter of 2000.

As part of the deal, Terra Lycos will build on Lycos' existing relationship with Bertelsmann, which has signed a $1 billion five-year agreement with Terra Lycos for the purchase of worldwide advertising and branding. In return, Terra Lycos will gain access to Bertelsmann's content, and will work with the media group to develop platforms that allow consumers to buy and download music and books through digital delivery.

Terra Lycos will also gain access to Telefonica's content, including radio stations and pay television in Spain and Argentina, and to a global cable, broadband, satellite and wireless network. The new company will own 49 per cent of a wireless joint venture established in partnership with Telefonica.