$16.8-Billion Deal for Domain Name Firm
What’s in a name? About $16.8 billion if the name is on the Internet and you’re the company that put it there.
That company is Network Solutions, which has registered 90% of the Internet names that end in the familiar “dot-com.” On Tuesday, Network Solutions accepted a buyout offer from VeriSign, which makes software for secure online transactions, for $16.8 billion in stock.
The purchase price underscores how the Internet’s influence has swept across the global economy, prompting businesses and individuals to register names on the Net. Two years ago, fewer than 2 million names had been placed on the Net; today, the number tops 9 million. And analysts say that’s just the beginning.
“There are potentially 160 million names on the World Wide Web” that will be registered, said Ulric Weil, senior technology analyst for Friedman, Billings, Ramsey & Co. in Arlington, Va. “The potential is gigantic.”
Through a combination of business acuity and luck, Network Solutions has cashed in on that meteoric growth. For six years, the once-sleepy government contractor was the only company allowed by the Commerce Department to register Internet names. Even though it now faces competition from a few dozen upstarts, it still dominates a market that is the digital equivalent of Ellis Island.
“That is the first piece you need when you go to the Web--you’ve got to have a name,” said Michael Murphy, editor of the California Technology Stock Letter in Half Moon Bay. “People not only have dozens of domain names now, they have hundreds of names. Even every movie has a domain name.”
Herndon, Va.-based Network Solutions has collected an annual fee of at least $35 for each of the 8.1 million names ending in “.com,” “.net” and “.org” it has registered as of the end of last year. That, along with providing an array of Web consulting services, has made it one of the few Internet firms that actually makes a profit--nearly $27 million last year on $221 million in revenue.
Network Solutions won a government bid to become the exclusive registrar of Internet names in 1993. Four years later, it registered the first 1 million Web addresses. The next million names were assigned in 15 months, and the million after that in just six months. Now the company registers a million names in a matter of weeks.
“Twenty-five percent of all the domain names ever registered in history were registered last quarter,” said Doug Wolford, general manager of Network Solutions’ registrar division. “If you think about domain names as a building permit, a leading indicator of something else that’s going to happen, the new economy today is just a tip of the iceberg of what it’s going to be six months from now.”
That soaring demand reflects the fast-growing number of Internet users. More than 100 million Americans were using the Internet last year, up from 37 million in 1996. And by 2003, 157 million Americans are expected to have Internet access, according to market researcher Jupiter Communications of New York.
Those numbers, in turn, are driving the growth of electronic commerce. Consumers spent between $5 billion and $10 billion shopping online in the last three months of 1999, according to various estimates. Analysts believe business-to-business sales amounted to about 10 times that level.
VeriSign, based in Mountain View, Calif., provides e-commerce companies with software tools for ensuring that online transactions are secure.
VeriSign intends to use Network Solutions’ huge registry of customers to try to sell them additional Internet services. It makes sense for the two companies to combine because they can fuel each other’s growth, said Tim Bajarin, analyst with Creative Strategies in Campbell, Calif. VeriSign would be able to market its services to customers as soon as they register a domain name with Network Solutions.
The combined company would have annual revenue of more than $300 million and profit of about $30 million, based on their performance in 1999. Although Network Solutions’ sales and profit are greater than those of VeriSign, VeriSign’s larger market capitalization allowed it to be the acquirer.
VeriSign’s shareholders would own 60% of the combined firm, and Network Solutions shareholders would own 40%. VeriSign would issue 2.15 shares of its common stock for each share of Network Solutions.
That values the deal at $16.8 billion based on Tuesday’s closing stock prices in Nasdaq trading.
News of the deal pushed Network Solutions shares to a 52-week high of $407.39, up $46.77. But investors pummeled VeriSign, sending its stock down $47.44 to $200. (That made VeriSign’s offer worth $430 per share of Network Solutions.)
The firms expect the deal to close in the third quarter, pending regulatory and shareholder approval.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
At a Glance
VeriSign has agreed to buy Network Solutions in a deal valued at about $16.8 billion. A look at the companies:
VeriSign
* Business: Makes Internet security software for electronic commerce and communications.
* Ticker: VRSN
* Headquarters: Mountain View, Calif.
* CEO: Stratton Sclavos
* Shares outstanding: 102.5 million
* Market capitalization: $20.5 billion
Network Solutions
* Business: Pioneered the registration of Web addresses ending in “.com,” “.net” and “.org” and is the largest registrar of domain names on the Internet.
* Ticker: NSOL
* Headquarters: Herndon, Va.
* CEO: James Rutt
* Shares outstanding: 39 million
* Market capitalization: $15.8 billion
Sources: Bloomberg News, company reports, company Web sites
Researched by NONA YATES/Los Angeles Times
