Verisign buys Network Solutions for $17b

Network Solutions, the long-time leader in distributing Web domain names, has

agreed to a $16.8-billion take-over offer from VeriSign, a Web security company.

The merger is the biggest yet between two companies that grew up in the new

dot-com economy.

On the surface, it does not appear there is a lot of synergy between the

services provided by either company. VeriSign makes sophisticated encryption

products and services for secure online financial transactions like credit card

purchases or wire transfers over the Internet. Network Solutions until recently

had a monopoly on assigning and recording the millions of Web addresses that

populate the Internet.

The acquisition comes amid unprecedented concern about security and privacy

on the Internet. A surge in Web transactions has created an intense need for

software and services to secure customer purchases. Officials for VeriSign said

the merger would enable them to offer a package of services that will enable

businesses and consumers to conduct a broad range of e-commerce activities, from

registering a domain name to high-value transactions and advanced communications

in the area of secure transactions and so-called virtual private networks.

As more and more companies are getting into the e-commerce business, an

increasing percentage will lack sufficient technical capabilities to manage all

of the tasks involved in migrating a large part of the business to the Internet

and do so securely. GartnerGroup analyst John Pescatore commented that the

merger "will offer a much simplified approach for companies to move into secure

e-commerce. It's going to greatly remove the complexities of small businesses

getting into e-commerce and the Internet. It is really a good fit."

Pescatore pointed to the recent announcement by Ford, General Motors and

DaimlerChrysler to channel their combined $240 billion in annual spending on

supplies through a single Internet portal to create the world's biggest virtual

market. Network Solutions Chief Executive Jim Rutt will continue to lead Network

Solutions, which will become a unit of VeriSign. Rutt will report to VeriSign

President and Chief Executive Stratton Sclavos, who will continue as head of

VeriSign.

VeriSign's Sclavos said the deal would fuel growth for the combined companies

revenue and profits on an operating basis. Sclavos was a member of the Network

Solutions board and approached Network Solutions executives just last Thursday

with the acquisition proposal. "Events moved quickly from there and both

boards back the combination. The deal speaks for itself. It's transforming for

both companies," Sclavos said.

Sclavos estimated that 40 million businesses will establish a commercial

presence on the Internet within five years. These companies will need Web sites

and most will need encryption technology. "Clearly things are accelerating

in e-commerce. We believe the biggest opportunity, 99.5 per cent of it, is in

front of us."

Network Solutions was founded in 1979 and was hired by the U.S. government to

handle housekeeping for the maze of interconnected computers, doling out and

keeping track of addresses ending with the suffixes .com, .net, .org, and .edu.

Network Solutions currently has more than 8 million customers. It faces some

competition from register.com and several other new companies offering domain

registration services.