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AT&T, Yahoo! Grab 37 Percent of Net2Phone

Acknowledging the future of IP telephony, a consortium led by AT&T and Yahoo! Inc. Friday took stakes totaling 37 percent in Net2Phone Inc. worth almost $1.6 billion.

Joining AT&T will be British Telecom and Liberty Media. The AT&T-led group will purchase 4 million class A shares from Net2Phone (NTOP) at a price of $75 per share.

In addition, the consortium will purchase 14.9 million Class A Net2Phone shares from IDT Corp. (IDTC), Net2Phone's controlling shareholder, for $75 per share. Following these transactions, the consortium will have a 32 percent stake worth about $1.4 billion. Their stake carries 39 percent of the voting rights.

AT&T (T) will invest $725 million, giving it a a 51 percent interest in the group.

In its deal with Yahoo! (YHOO), Net2Phone sold the portal approximately 2.8 million shares of its common stock in exchange for approximately 806,000 shares of Yahoo! common stock worth $150 million.

Also, AT&T and Net2Phone plan to jointly develop new Internet voice applications for cable telephony and the business communications market. AT&T and IDT will each be granted a license to deploy Net2Phone's technologies on a guaranteed lowest cost basis.

The consortium will gain three seats on Net2Phone's board. The transaction, which has been approved by the boards of AT&T, IDT and Net2Phone, is expected to close by the third quarter.

"AT&T's adoption of the Net2Phone technology, along with our growing relationships with AOL and other major players in the Internet and telephony industries, provide a solid base from which we can create a standard in IP telephony which will allow the industry to move into the broadband future," said Howard Jonas, chairman and chief executive officer of IDT.

Jeff Pulver, Net telephony specialist and president of Pulver.com, talked about the major play.

"They are indirectly increasing the value of all the IP telephony stocks by 100-fold over time," Pulver said. "They're giving validation and reasons for everybody who wants to be a pioneer to go out and do it. For those people who can successfully execute a business strategy that generates minutes of use there is somebody who is not only going to buy your services, but maybe buy your company, too."

Pulver also said the deal was a move to stave off further stakes by America Online Inc. in Net2Phone.

He said the ironic part of the consortium's strategy is that Net2Phone already has an exclusive, multi-million dollar instant messaging agreement with AOL-owned ICQ.

"What you're seeing is the turn of the screw," Pulver said.