VeriSign To Acquire Network Solutions for $21B

In an effort to gain Internet dominance, Internet trust provider and security firm VeriSign (Nasdaq: VRSN), Inc. (Nasdaq: VRSN) has agreed to acquire domain name registrar Network Solutions, Inc. in a stock-for-stock swap worth an estimated $21 billion (US$).

The combined company plans to add staff in order to build its presence in new Internet service areas. Network Solutions (NSI) will become a subsidiary of VeriSign, and NSI CEO Jim Rutt will retain his position, reporting to VeriSign President and CEO Stratton Sclavos.

Trying to Diversify

Network Solutions has been working on diversifying its services since last year, when it lost its exclusive hold on the Internet domain name registration business. NSI now shares those privileges with many other companies as a result of a move by the Internet Corporation for Assigned Names and Numbers (ICANN) to foster competition in the registration process.

NSI continues to operate the common name registry database for all 34 domain name registrars around the world. In addition, NSI has established itself as a domain registration leader with more than 8.1 million domain names on its roster and partnerships with more than 240 companies, globally. The company has strategic alliances in place with such major Internet portals and search sites as AltaVista, America Online, Netscape's Netcenter, EarthLink, Interliant, Microsoft (Nasdaq: MSFT) and Yahoo!.

The new services that NSI has added may have attracted VeriSign, which previously focused strictly on providing security authentication services for online merchants' secure (SSL) transactions. To increase its appeal in the face of competition from other registrars -- including some that offer lower registration fees -- NSI has added Web site building services, e-mail, Web site promotion services and an Internet directory.

VeriSign already provides secure transaction authentication for more than 1,000 enterprises and 215,000 Web servers.

Under the agreement, VeriSign will issue 2.15 shares of common stock for each share of NSI stock held before NSI goes through with its planned 2-for-1 split on March 10th. The deal is expected to close in the third quarter of this year.

Mega-Deal or Paper Tiger?

With the deal having a value of $21 billion, analysts are already wondering whether VeriSign is making a wise decision. Its stock, for example, was down $37 per share in midday trading based on news of the acquisition.

At issue is whether Network Solutions has a long-term future that extends beyond providing name registration services and also serving as the technical operator of the name registry database.

While Network Solutions, as of late, likes to portray itself as an e-commerce company, analysts wonder how successful the company will actually be at providing Web site building and promotional services, especially since it is trying to enter a very crowded market.

For example, Microsoft launched its bCentral small business service portal last year, and Dell Computer Corp. recently announced a new web hosting service. These firms are just two of hundreds of companies that, in addition to their core businesses, are also endeavoring to provide Web services to small businesses.

In short, it is far from clear whether VeriSign's huge purchase will net it a company that is, in essence, little more than a glorified clerk, or whether it has guaranteed its dominance in the age of the Internet.