VeriSign Buys Network Solutions for $21 Billion

Calling the move a consolidation of trust infrastructure, VeriSign Tuesday bought former domain monopoly holder Network Solutions
for $21 billion in stock.

VeriSign will issue 2.15 shares of stock
for each NSI share, prior NSI’s 2-for-1 stock split scheduled for March 10.
The transaction, which still needs shareholder approval, is expected to close in the third quarter. NSI will then become a subsidiary of Verisign.

VeriSign (VRSN)
and NSI (NSOL)
said the combined entity will serve businesses as an end-to-end
e-commerce infrastructure provider.

The NSI-boosted VeriSign will divide its services into four components:
establishing online presences (domain name registration, directory listings,
DNS services); basic e-commerce (digital certificates, secure transactions,
credit card payment); customer/supply-chain management (secure extranet
services, virtual private networks, wireless communications, real-time
validation) and global trading (credentials for B2B exchanges, trusted
directories, purchase card and automated clearing house payments, digital

“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,” said Stratton Sclavos, VeriSign’s president and chief executive officer.

“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.”

Because the two companies had already cemented a longstanding relationship,
the acquisition was a “natural evolution” of the previous partnership, said
NSI CEO Jim Rutt.

Bill Whyman, an analyst with Legg Mason Precursor Group, said the growing competition in the domain name space led to NSI’s decision to become part of a larger company.

It was reported that last quarter, competitors registered 30 percent of all new domains, suggesting that they’re eating into NSI’s pie pretty quickly.

“I think it’s kind of a combination of Network Solutions saying, ‘boy this is a pretty good offer, the market’s getting competitive and it’s going to be darn hard to build a suite of value added services,” Whyman said. “And by their choices they thought this was a better option than trying to go it alone.”

Robert Fagin, who covers NSI for Bearn Stearns, also predicted that NSI’s share of the total installed base of domains could drop as low as 50 percent by year 2005.

For Verisign, the deal means a more comprehensive suite of tools for Web professionals, said Whyman.

“I guess it’s the belief that domain names will help [Verisign] be one of the key identity managers on the Web,” he said.

“They believe at least the whole — meaning certificates, domain names and authentification services — is more than the sum of its parts.”

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