WSJ on the VeriSign/Network Solutions merger

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From: Adam Rifkin -4K (
Date: Tue Mar 07 2000 - 17:40:31 PST

If I had $21 billion laying around, I'm not sure Network Solutions is
the company I would buy, being as I could buy Microstrategy or Inktomi
for that price, or Akamai, Exodus, or Infospace if I were willing to pay
a little more... and since VeriSign is paying stock only, what's the
real cost in printing up a few more pieces of paper anyhow?

It's weird to wake up one day in early March 2000 and realize that a
combined VeriSign and Network Solutions is worth almost $50 billion on
paper. Wow, that's even more than Palm is worth... :)

Looks like picked the perfect time to go public: last week.
Their stock (RCOM) was up 54% today on nws of this deal.

> March 7, 2000
> VeriSign to Buy Network Solutions
> In a $20.75 Billion All-Stock Deal
> MOUNTAIN VIEW, Calif. -- Encryption-software company VeriSign Inc. said
> Tuesday it has agreed to acquire Internet domain-name registrar Network
> Solutions Inc. in an all-stock transaction valued at $20.75 billion.
> Under terms of the agreement, VeriSign will issue 2.15 of its shares for
> each Network Solutions share. The exchange ratio is based on the number
> of outstanding Network Solutions' shares prior to a 2-for-1 stock split
> planned for later this week.
> Each share of Network Solutions would be swapped for VeriSign stock
> valued at $532 based on Monday's closing price, 48% above Network
> Solutions' price of $360.625 on the Nasdaq Stock Market. Network
> Solutions jumped $4.9375 on Monday, while VeriSign slipped $1.0625 to
> $247.4375, also on the Nasdaq. Network Solutions currently has 39
> million shares outstanding.
> The deal combines two Internet leaders: Network Solutions is the
> principal registrar of Internet domain names ending in .com, .net and
> .org, and Verisign is the largest provider of the data-security software
> crucial to the advance of e-commerce over the Internet.
> The deal will allow the combined company to offer emerging e-commerce
> businesses a broad range of online services, Stratton Sclavos, president
> and chief executive of VeriSign, said in an interview Tuesday.
> Mr. Sclavos said combining VeriSign's Internet authentication,
> validation and payment services with Network Solutions' Internet-address
> registration services would allow the merged company to meet all the
> infrastructure needs of companies launching businesses on the Web.
> "We want to be the trusted infrastructure play on the Internet," said
> Mr. Sclavos.
> He said that Network Solutions' relationship with e-commerce companies
> begins when those companies get their Web identity. "We now have a
> direct channel to those customers to offer some of our other e-commerce
> services to them early on," he said.
> A Monopoly Ends
> Network Solutions said it registered a record 1.6 million new domain
> names in the latest fourth quarter, up 161% from 621,000 names in the
> year-ago quarter and up 23% from the third quarter 1999 total of 1.3
> million. For all of 1999, Network Solutions said it registered five
> million domain names, compared with 1.9 million in 1998.
> Under a contract with the federal government, Network Solutions was the
> exclusive registrar of the most prevalent domain names from 1992 until
> last April, but that monopoly is ending, now that the U.S. Commerce
> Department has approved new registrars to compete in the burgeoning
> market. Network Solutions said 26 additional registrars are operational
> and registering domain names in .com, .net and .org. These outside
> registrars signed up an additional 890,000 names with Network Solutions'
> registry last year.
> Network Solutions in November worked out a deal with the government to
> remain the exclusive overseer of the central database of Internet domain
> names until November 2003. The government will extend the contract until
> November 2007 if Network Solutions separates ownership of the registry
> and registrar operations by May 2001.
> In addition to registering domain names, Network Solution also provides
> computer-networking consulting services.
> VeriSign, for its part, helped pioneer the outsourcing model for digital
> security and encryption. The company operates a highly secure computer
> "bunker" at its headquarters in Mountain View, Calif. When a company
> signs up for the service, the company dispatches digital certificates to
> the customers' computers. The software certificates contain information
> about the client company or individual to which the computer belongs. In
> this way, a business that communicates with suppliers over the Internet
> can access the suppliers' certificates to verify the suppliers'
> identities before processing an order.
> VeriSign, which charges Web-site operators $895 a year and individuals
> $14.95 a year for certificates, boasts that 100,000 Web sites, including
> virtually all Fortune 500 companies, are using its certificates. The
> company had sales last year of $84.8 million.
> A High Premium?
> Mr. Sclavos said the deal's premium -- 47% based on Friday's closing
> prices -- is in line with, or lower than, other recent Internet
> acquisitions and is well worth the money.
> "This is a franchise that's strong, that's generating top-line and
> bottom-line growth," he said, referring to Network Solutions. "Even
> though competition was introduced recently, they're holding their own in
> terms of growth."
> But investors seemed less excited about the deal. VeriSign shares were
> down $37.3125, or 15%, to $210.125 in early-afternoon trading on the
> Nasdaq Stock Market. Network Solutions shares, however, soared $59.3125,
> or 16%, to 419.9375, also on Nasdaq.
> VeriSign and Network Solutions said the deal is expected to close in the
> third quarter. At closing, Network Solutions will become a subsidiary of
> VeriSign with Jim Rutt continuing to serve as Network Solutions' CEO,
> reporting to Mr. Sclavos, president and CEO of VeriSign.
> Morgan Stanley Dean Witter served as financial advisers to VeriSign, and
> JP Morgan and Chase H&Q served as financial advisers to Network
> Solutions.

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