RealTime IT News

AOL Acquires Netscape For $4.2 Billion

Following several days of negotiations, America Online Inc. Tuesday acquired Netscape Communications Corp. for $4.2 billion in stock.

While it's tying the knot with Netscape, AOL will continue to include Internet Explorer in its software so it will remain bundled with Windows 95 and 98. AOL's CEO and Chairman Steve Case said the next step is not focused on browsers, but in the new generation of Internet devices, enabling connection to the service at all times.

Netscape Chief Executive Officer and President Jim Barksdale denied speculation by others who said the company was forced into a merger to compete effectively against Microsoft.

"Netscape did what was in the best interest of Netscape. This has nothing to do with the DoJ case and I don't think this (deal) affects the case one way or another."

Netscape shareholders will receive .45 shares of AOL common stock for each share of Netscape they own. The companies expect the acquisition to close by next spring, subject to shareholder and regulatory approval.

Case said the two companies will be run as separate product groups, with Netscape operating from its Mt. View, Calif. headquarters and AOL in Virginia. Bob Pittman, AOL president and chief operating officer, will oversee Netscape with its executives, such as Netcenter head Mike Homer reporting directly to him.

Barksdale, Netscape's president and chief executive officer, will become a member of AOL's board of directors, although he will not be involved in daily management. Marc Andreessen, Netscape's co-founder and executive vice president of products, will serve as chief technology officer of Netscape until the deal is finalized. Andreesen and AOL still have to work out what his future role will be once the deal closes..

In an earlier interview, Barksdale said he did not forsee any job cuts resulting from the acquisition. However, Tuesday Pittman said the company will spend the next three to four months working on an integration plan and it was premature to rule out layoffs.

In a separate agreement with Sun Microsystems Inc., AOL will receive $350 million from Sun over the next three years in licensing, marketing and advertising fees, as well as major minimum revenue commitments.

The companies' marketing venture includes co-developing enterprise e-commerce applications and incorporating Sun's Java technology in creating next-generation Internet devices. In addition, Sun and AOL will expand their respective sales channels, integrating each other's products and services.

Sun will become a lead systems and service provider to AOL and AOL has committed to purchase $500 million in systems and services from Sun through 2002 for itself and its e-commerce partners.

Outlining the Netscape/AOL merger benefits, AOL said the marriage will advance its multiple-brand strategy with Netscape, further AOL's global audience through Netscape's Netcenter portal, fuel e-commerce expansion for AOL, Netscape and their business partners, boost consumer brands through the sharing of the existing infrastructure and allow AOL to expand its product and services using Netscape's technology.

"The acquisition of Netscape is a big step forward for America Online that will greatly accelerate our business momentum," said Case.

"We have been very impressed with how quickly Netscape has transformed its business -- shifting its focus away from browsers and platforms and toward high-growth portal and e-commerce opportunities. Netscape's highly regarded suite of e-commerce software, coupled with our strategic alliance with Sun, will help us drive e-commerce to a whole new level that will benefit both business partners and Internet consumers."

"One key to this acquisition is the flexibility that it gives us. ICQ, our instant communications and chat portal, will promote the downloading and registration of the Netscape client software to its large and rapidly growing international community," said Case.

While Netscape and AOL executives were highlighting the deal's benefits, some were also criticizing the union.

Jamie Love, spokesman of the Consumer Project on Technology, said the group planned to formally object to the merger. He said the union would put Internet service providers at a disadvantage because the dominating browsers will be controlled by two of their largest competitors.

Love urged antitrust experts to take a close look at that issue.

Microsoft spokesman Mark Murray said the deal showed competition in the industry is alive and well. He said government interference in the industry is booth unnecessary and counter productive.

"The government's case was groundless from the start. This deal drives home the point that the marketplace can take care of consumers far better than the government ever can," he said.

Case said AOL's acquisition of Netscape doesn't mean the company is abandoning all cooperation with Microsoft.

"We also expect to maintain our working relationship with Microsoft, continuing to include Internet Explorer in the AOL service so consumers will continue to have AOL software included on the Windows desktop," Case said.

There had been some speculation that the deal would mean Netscape Navigator would replace IE as the integrated browser. Microsoft Corp.

Barksdale said the partnership will enable Netscape to deliver better and more complete products to both new and existing customers.

"America Online and Netscape share a common vision -- to offer solutions that make it simple for businesses and consumers to participate fully in the Net economy. The companies' complementary strengths promise to accelerate the adoption of e-commerce and Internet applications worldwide," Barksdale said.

"By acquiring Netscape and working with Sun to provide winning e-commerce solutions, we will be able to both broaden and deepen our relationships with business partners who need this additional level of infrastructure support and to provide more value and convenience for Internet consumers," Case said.