Japan’s NTT Buys Verio For $5.5 Billion

Japan’s NTT Communications
Monday bought the largest Web hosting firm in the U.S. by
purchasing the remaining stake of Verio
that it does not already own for about $5.5 billion.

Tokyo-based NTT Communications, a subsidiary of Nippon Telegraph and Telephone
said it would acquire Verio (VRIO)
for $60 per common share.

NTT Communications has been expanding its global network services and
IP-based services. Primarily focusing on Asia, NTT Communications is
focused on meeting the growing demand for corporate data communications
services over the Internet.

The Verio deal marks NTT’s largest investment to date and the first full
acquisition for the Japanese giant, which is a relatively late entrant into
the global telecommunications market.

Masanobu Suzuki, NTT Communications president and chief executive officer,
said the proposed acquisition of Verio is an important step for NTT
Communications global Internet strategy.

“In the arena of global business, we have been focusing on expanding
network services globally and providing them through IP networks,” Suzuki

“Another pivotal point is to have business footholds in Asia. The
proposed acquisition of Verio gives an important leverage for expanding our
global business in the U.S.”

Together, NTT Communications and Verio would have the ability to meet the
needs of customers of all sizes, from the largest multinational
corporations to the newest Web-centric start-ups, throughout the Pan
Pacific region and the U.S.

Suzuki said NTT Communications expects the successful acquisition of Verio
to provide a basis for the global expansion of its services.

“By combining the IP networks and services of the two companies, we will be
able to offer one-network IP solutions under a single-policy operating
structure,” Suzuki said.

“These include having the ability to transmit
mission-critical data across the two networks and to furnish a uniform
level of quality and services.”

Justin L. Jaschke, Verio founder, director, and chief executive officer
said the company believes that the agreement represents an excellent value
for its shareholders and an exciting future for its all aspects of its

“We believe that this agreement represents an excellent value for our
shareholders and an exciting future for our customers, employees and sales
channel partners,” Jaschke said. “This transaction brings together two of
the world’s leading Internet companies to form an even stronger global IP

Verio was an appealing company to NTT Communications as a market-leading
U.S. Web hosting firm providing a comprehensive portfolio of Internet
services. Verio currently hosts more than 400,000 Web sites, specifically
targeting small- and medium-sized businesses.

Verio also operates a Tier One Internet backbone network in the U.S. NTT
Communications operates an established IP network in Asia. The proposed
combination will enable NTT Communications and Verio to provide both IP
network services and advanced Web-based business solutions.

Jaschke said the combination of Verio and NTT Communications further
enhances its ability to meet the expanding needs of companies and to
accelerate the growth of its business services in the U.S. and around the

“With our world-leading hosting platforms, Tier One network and strong
global distribution, we expect to play a key role in the development of NTT
Communications’ international business,” Jaschke said.

NTT Communication’s Suzuki said the two firms worked well together

and that
the deal was a natural extension of an original agreement made two years ago.

“Since completing our original investment in Verio in 1998, our companies
have established a mutually successful strategic relationship,” Suzuki
said. “In the long run, I believe this acquisition will have a positive
impact not only on our customers worldwide, but on our financial foundation.”

NTT Communications expects its proposed combination with Verio to generate
several specific benefits to customers, shareholders of NTT, and the new
Internet economy in general.

Alex Arnold, Adams, Harkness &
equities analyst, said the deal will allow both NTT and Verio to make a greater push in European markets. NTT Communications already serves 50
countries with a focus on its Asian markets.

“NTT Communications are making a big push to go global and that’s one of
their primary goals,” Arnold said. “Verio is not going to be a Japanese
company. It’s an asset that Verio is very strong in the U.S. and currently
pushing into European markets.

Bill Whyman, Legg Mason (LM)
Precursor Group Internet strategist, said Monday’s merger really didn’t break any new ground.

“Telephone companies have been moving up the value-added pyramid with deals
like the NTT, Verio merger because it compliments their strategy,” Whyman
said. “But it’s a strategy that AT&T (T), MCI World Com (WCOM)
and Global Crossing a
already embraced. NTT Communications is a little late to bundle backbone
and Web hosting services with its phone service.”

Rudy Baca, Legg Mason Precursor Group global strategist said NTT
communication’s “me-to” entry into the marketplace was probably delayed by
the Japanese government’s bureaucracy.

“NTT Communications me-to delayed entry into the global arena is due to
it’s close relationship with the Japanese government,” Baca said. “The
Japanese government would have been a part in any decision of this
magnitude and may have delayed NTT Communications entry into the market.”

The combined company will integrate NTT Communications’ Asia IP network and
Verio’s Web hosting and e-business solution capabilities in the U.S.,
giving the company the ability to offer a “one network” solution to its
customers in both Asia and the U.S.

In doing so, NTT Communications will be able to provide more value-added
services to strengthen its sales and service offerings by utilizing Verio’s
know-how in IP network operations.

The proposed acquisition will facilitate investments and development for
new global IP services including Virtual Private Networks and global Web
content caching.

As a result of the deal, Verio will be able to quickly expand its client
base in the U.S. and Asia markets. No change in Verio’s management team is
anticipated, and the Verio brand name will be retained.

The agreement calls for a U.S. subsidiary of NTT to begin a tender offer
for the Verio shares no later than May 17. The deal is expected to be
complete by the third quarter of 2000. The tender offer is subject to
customary terms and conditions.

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