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Terra, Lycos Must Tread Transatlantic Divide Warily

George Mannes

Even when everyone speaks English, transatlantic mergers can be tough to pull off.

As a result, say Internet executives who have experience managing international operations, don't expect Madrid-based Terra Networks (TRRA Quote - Cramer on TRRA - Stock Picks) to have an easy time with its $12 billion buy of Lycos (LCOS Quote - Cramer on LCOS - Stock Picks), Waltham, Mass.

The story of U.S.-European deals "is not a pretty story," says Jonathan Klein, CEO of online stock-photo company Getty Images (GETY Quote - Cramer on GETY - Stock Picks). Noting cultural and logistical difficulties, the executive says, "The successes are the exception, not the rule." In keeping with that thinking, investors fled the companies' shares Wednesday amid a tech selloff, with Lycos plunging 15, or 21%, to 57 5/8 and Terra sliding 6 9/16, or 12%, to 47.

Reverse English

Klein has some firsthand experience with the difficulties. In early 1998, when Getty's major operations were headquartered in the U.K., the company acquired the Seattle-based PhotoDisc. In the early days, staffers at the different companies had difficulty communicating, says Getty, partly as a result of cultural differences and partly because of time zone differences.

The fact that everyone spoke English didn't always help. In fact, the company had to develop a glossary, says Klein, so that people understood, for example, that the part of the operation known as "creative" in the U.K. was referred to as "content development" or "content production" in the U.S. "The names of the departments caused more confusion than clarity to begin with," he said.

After the acquisition, Getty split its headquarters between London and Seattle but gave up on that idea after a little more than a year, moving the head office to Seattle. That experience might be relevant for the proposed Terra Lycos, which plans to split headquarters between Madrid, Waltham, Mass., and Miami. "At the end of the day, we decided that the corporate headquarters had to be in one place," Klein says. "It was just very difficult."

Culture Club

The logistics of putting together Lycos with Terra, majority-owned by Spanish telco Telefonica (TEF Quote - Cramer on TEF - Stock Picks), are predictably difficult, says Jonathan Bulkeley, former managing director of AOL U.K. and now chairman of European auction site QXL.com (QXLC Quote - Cramer on QXLC - Stock Picks). "You've got a real-world guy buying an Internet company for $12 billion," Bulkeley says. "It ain't easy. It's not simple. ... It's not unique to the Internet business."

Heather Killen, senior vice president, international operations, for Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks), says it's important that Yahoo!'s employees around the world have a sense of really belonging to the company. But she's at a loss to explain exactly how that far-flung loyalty is developed. "If I knew how to really describe that, I'd put it in a bottle and sell it," she says. "A lot of it comes down to hiring."

Not commenting directly on the Terra Lycos deal, Killen says the cornerstone of Yahoo!'s strategy is to have a single technical platform that can underlie all of its global properties, and to have a single brand that can be used worldwide. That makes it easy, for example, for a Yahoo! subscriber in Germany to log on to the U.S.-based version and get quotes of U.S. stocks.

Eyes Wide Open

Lycos Executive Vice President Ron Sege says the company is well aware of the possible difficulties, and well-prepared to deal with them. "We're going into this with our eyes wide open," he says.

While admitting that neither his nor Lycos CEO Bob Davis' Spanish language skills are wondrous, Sege says they and other company executives have plenty of experience in multicountry, multilanguage environments. Lycos, for example, already has operations in 22 countries, Sege says. He adds that when he worked at networking company 3Com (COMS Quote - Cramer on COMS - Stock Picks), he oversaw operations in five countries with five languages.

Terra Lycos will be managed through a combination of overarching principles and locally driven operations, Sege says, in line with Lycos' current philosophy of thinking globally and acting locally. The new company's finances and brand strategy will be centrally, tightly managed, he says. As much as possible, individual technologies will be deployed globally -- for example, the search engine underlying Lycos' HotBot will be extended to Terra, he says. And the company hopes to use a single advertising management system to enable worldwide advertising sales.

The experience that Lycos has developed through numerous acquisitions over the years will help, says Sege. "We're putting together a very rigid and structured integration process here," he says. "We've done this many, many times before."