Verisign to acquire Illuminet in $1.2 bn deal

Elinor Mills Abreu

SAN FRANCISCO: VeriSign Inc. said on Monday it plans to acquire Illuminet

Holdings Inc., a provider of network connectivity and services to

telecommunications carriers, in an all-stock deal valued at $1.2 billion.

With the acquisition, VeriSign is attempting to become a major player in the

emerging market for integrated voice and data services, VeriSign president and

chief executive Stratton Sclavos said in an interview on Sunday.

Under the terms of the transaction - the third significant acquisition

announced since the Sept. 11 air attacks - Mountain View, California-based

VeriSign will exchange 0.93 shares of its stock for each share of Illuminet,

according to Sclavos.

The announcement drove VeriSign's stock price up to $39 in pre-open trade

from its closing price on Friday of $38.30 per share. The stock dropped 0.3 per

cent, to $38.20 by midday. Illuminet was trading down 47 cents, or 1.3 per cent,

at $34.51 Monday.

The deal, which the company anticipates will increase VeriSign's earnings by

5 per cent to 7 per cent in 2002, has been approved by the boards of both

companies but still needs regulatory approval and the go-ahead from Illuminet's

shareholders, Sclavos said. The transaction is expected to be completed late

this year or in early 2002, he said.

VeriSign, the major provider of Web addresses to businesses and individuals

and a leader in selling authentication and payment security services that enable

e-commerce, will integrate its Web directory database, with about 5 billion

domain names, with Illuminet's telephony infrastructure.

This will enable the company to deliver location-based telephone services to

customers, Sclavos said. For instance, the company is planning navigation

services that will enable wireless phones to link specific phone numbers

directly to Internet Web addresses, or domain names, he said.

A few months ago, VeriSign announced plans to offer Global Voice Registry

services, which will allow people to get information about a specific business

or be instantly connected to the nearest location of a business by simply saying

the name into the telephone. VeriSign expects to begin offering trials of the

voice registry service in the first quarter of next year, Sclavos said.

Since Sept. 11, two other large deals have been announced. On Sept. 19,

German utility RWE AG announced it had offered to purchase American Water Works

for $4.6 billion. On Sept. 20, Duke Energy Corp. announced it was buying

Westcoast Energy Inc. for $3.5 billion.

Integrated voice-data services



"The roaming technologies that Illuminet has and our ability to deliver
fast directory lookups and security" will allow VeriSign to be an early

provider of integrated voice-data services, Sclavos said. "We'll take what

we learned from the Internet world and combine it with Illuminet's voice

world."

With its independently owned carrier-to-carrier switching network, Illuminet

allows wired and wireless carriers to transfer telephone calls between different

networks. Illuminet routes telephone calls across its network and handles

billing and other interoperational functions for its disparate carrier customer

networks.

With its vast customer information database and communications network

utility interface, Illuminet provides so-called "intelligent networking

services" that enable carriers to provide customers with options like

caller ID, cellular roaming, short messaging, Internet telephony, and local

number portability so people can retain the same phone number under different

carriers.

Illuminet, founded in 1996 and based in Olympia, Washington, has more than

900 customers, including AT&T Corp., WorldCom Inc., Verizon Communications,

and AOL Time Warner Inc., said chief executive Roger Moore.

VeriSign, which acquired domain name provider Network Solutions Inc. in an

all-stock deal valued at about $16 billion last year, wrote down $9 billion on

the value of that acquisition because of the market downturn.

The impact of the Illuminet acquisition will be less drastic for VeriSign

this year as huge stock plunges have lowered the valuations of technology and

other companies across the board. "We think it's perfect timing, but to be

honest, we would have done it" regardless of the economic situation,

Sclavos said.

The price is right



Analysts applauded the acquisition, saying it puts VeriSign in a unique position
as a major player for both data and voice services.

"I think telephony is a key area for VeriSign and this leapfrogs them

into the telephony space," said Stephen Sigmond, an analyst with Dain

Rauscher Wessels investment bank in Minneapolis. Shareholders may be concerned

about the price VeriSign is paying during the economic downturn, however, noted

Matt Barzowskas, an analyst at FAC/Equities, a brokerage firm in Boston.

Spending "$1 billion in this market will probably spook some

people," Barzowskas said in an interview after the companies' conference

call, adding that he thinks it's a good deal for both companies. Sclavos and

Roger Moore, Illuminet's CEO, both said they were satisfied with the financial

terms. Illuminet's part of the deal represents 13 percent of the company and

VeriSign's is the remaining 87 per cent.

While some companies are forecasting lower-than-expected earnings as a result

of the Sept. 11 air attacks, Sclavos said VeriSign expects no material impact

from the events because the majority of its revenue comes from yearly

subscriptions for domain names and digital certificate services.

VeriSign - with about 2,400 employees - had revenue of $815 million for the

past four quarters and $444.6 million for the first half of the year. The

company operates the registry service for the ".com,"

".net," and ".org" domains that other domain companies

resell.

Illuminet, with about 500 employees, had revenue of $174 million in the last

four quarters and $70.8 million for the first six months of 2001. The company

was founded in 1996 and went public in 1999.

(C) Reuters Limited 2001.