AOL Acquires Netscape For $4.2 Billion

Following several days of negotiations, America Online Inc. Tuesday acquired Netscape Communications
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
, 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

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

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.

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