VeriSign Nabs NetSol for 21 Billion Dollars
The surprise deal combines one of the top names in security services for Internet commerce with the company that until recently held a monopoly on assigning and recording names for the millions of dot-coms, dot-orgs and dot-nets that populate the Internet.
"With one of the largest subscriber bases on the Internet, VeriSign and Network Solutions will have the scale and range of services to take e-commerce to the next level," VeriSign President and Chief Executive Stratton Sclavos said in a statement.
Sclavos told Reuters in an interview that Network Solutions's 8 million customers will create huge opportunities for VeriSign to expand the scope of its Internet security services.
Wall Street analysts backed that assertion.
"We think that it's a very strong deal and when investors drill down they will see that it forms one of the largest providers of solutions on the Internet," Paine Webber analyst John Hudulik said. "Network Solutions has a huge list of customers that VeriSign can mine to sell services to, and Network Solutions is poised to announce a tremendous quarter."
"The two companies were on track for enormous success by themselves," Bear Stearns analyst Robert Fagin said. "It makes sense to have a one-stop shop for a lot of Internet infrastructure."
Terms of the deal call for VeriSign to issue 2.15 shares of stock for each share of Herndon, Va.-based Network Solutions. Under that ratio, Network Solutions is valued at about 51 per share, based on VeriSign's stock price Tuesday morning of about 210. VeriSign has traded in a range of 203 to 226 so far Tuesday.
When announced, the company said the deal was valued at about 21 billion dollars, or 32 per Network Solutions share, based on Monday's closing price for VeriSign of 247-7/16 and the fully diluted number of shares outstanding of Network Solutions, including stock options.
In late-morning trading, Network Solutions topped the Nasdaq net gainers list, up 63-1/8, or more than 17 percent, at 423-3/4. VeriSign had slipped 37, about 15 percent, to 210, taking about billion off the deal's original value.
"With Network Solutions as the gateway to establishing online identity and Web presence, and VeriSign as the provider of Internet authentication, validation and payment services, our combined company will serve as the trust utility that will power the Internet economy," Sclavos said.
Network Solutions Chief Executive Jim Rutt will continue to lead Network Solutions, which will operate as a separate unit of VeriSign after the deal closes, expected in the third quarter. Rutt will report to Sclavos, who will continue as head of VeriSign.
"VeriSign and Network Solutions have a long-standing partnership, which makes this combination a natural evolution for our business and for the Internet," Rutt said.
The combination will allow businesses and consumers to conduct a broad range of e-commerce activities, from their first online experience -- registering their domain name -- to high-value transactions and advanced communications, Rutt said.
After closing, VeriSign said the company expects to add to its existing employee base to exploit new market opportunities.
Analysts said the deal could spark a new round of consolidation in the sector.
"The industry has been consolidating at a steady pace," Bear Stearns's Fagin said. "This is one of the biggest deals to date."
VeriSign's Sclavos told Reuters the deal would fuel growth for the combined companies revenue and profits on an operating basis. But VeriSign would record massive charges totaling between 8 billion and 0 billion, which it will amortize over three to five years, he said.
The deal came together over the past four days and grew out of the two companies' past history of close collaboration, Sclavos said.
"The companies were spending a lot of time together because we were working on mutual projects. We were spending so much time together we began to think about ways we could combine," Sclavos said.
Sclavos, who sits on the Network Solutions board, first approached Network Solutions executives and its largest shareholder, Science Applications International Corp., or SAIC, the largest pure-research company in the world, last Thursday with the acquisition proposal.
Events moved quickly from there, he said, and both boards and SAIC now back the deal.
"The deal speaks for itself," Sclavos said. "It's transforming for both companies."
News of the deal ignited a rally in shares of Network Solutions chief competitor, Register.com Inc., which rose 19-7/8, or more than 38 percent, to 70, just surpassing its year high of 69-1/2.