America Online Is Near $4-Billion Deal to Acquire Netscape
In a deal that could create the leading force in Internet commerce, America Online Inc. plans to acquire Netscape Communications Corp. in a stock swap. Knowledgeable sources say that the deal, valued at about $4 billion, will be announced as early as today.
While AOL takes the Internet business, Netscape’s business software operations would go to Sun Microsystems, according to several press reports. AOL’s alliance with the two most prominent Internet-related enemies of Microsoft could prove a bulwark against Microsoft’s designs on dominating the World Wide Web, as it has done with personal computing software.
The acquisition would give AOL--already the leading provider of Internet access to consumers and the most popular destination on the World Wide Web--a commanding lead in the race to bring online shopping and business services to the masses.
The companies have much to gain in the deal.
Virginia-based AOL obtains business-to-business electronic-commerce services, an area that it has fallen behind in while it emphasized consumer-oriented content. Mountain View-based Netscape is a leader in helping companies build effective Web-based sales and information-management systems.
AOL also gets Netscape’s Netcenter Web “portal site,” which now competes with AOL and Yahoo’s similar, though much busier, site businesses. Portals offer e-mail, Internet search, shopping, online chat, and a wide range of financial and business services. Such sites, which are where most users and customers enter the Internet, are expected to be a major profit center for electronic commerce.
Netcenter isn’t considered a leader in consumer and entertainment content, but, supported by Netscape’s related services, analysts consider its site a superior combination for making business-to-business electronic commerce--so far the biggest money-maker on the Web--successful. The company ties its business services software directly to features on both its Navigator Web browser and to the Netcenter Web site.
Netcenter is also one of the most popular sites on the Web, with more than 20 million individual visitors per month, according to the Internet survey firm Media Metrix. This would add to AOL’s industry-leading 30.5 million visitors, although it most likely would remain a separate site. Yahoo is second, with 29.1 million.
In becoming part of AOL, Netscape’s technology stands a better chance in an uphill battle with the much larger and more powerful Microsoft. Regardless of the disposition of the antitrust lawsuit against Microsoft currently being argued in federal court, Microsoft will remain a ferocious competitor.
AOL’s deeper pockets, which could market Netscape products and invest in technologies and companies that can exploit electronic commerce, could greatly advance Netscape’s strategy of becoming the leading purveyor of online business solutions.
A combined company would also be better able to promote the Netscape and AOL brands and maintain Netscape’s browser as the market leader. AOL currently distributes Internet browser software by rival Microsoft to its 14 million subscribers.
Sun Microsystems would benefit from the proposed deal in two ways. First, it would take control of Netscape’s business-level “server” software, which manages internal corporate networks, Web sites and commercial transactions. Palo Alto-based Sun already is the leader in making hardware for such networks.
Perhaps more important, Sun’s Java technology for running Internet programs would gain widespread distribution among AOL subscribers--benefiting Sun’s efforts to maintain control over Java in the face of a move by Microsoft to adapt the technology.
Microsoft has much to lose if the deals go forward. Combined with the advantages for Java, a solid AOL-Netscape partnership could prove a much more formidable foe in the browser wars, stemming the rapid ascent of Microsoft’s Internet Explorer browser. The inclusion of Internet Explorer within Microsoft Windows, the software that runs the vast majority of personal computers, is a key element in the Justice Department’s antitrust complaint against the software giant.
Both Microsoft and Netscape give their browsers away. But analysts view browser share as crucial to steering consumers from one Web site to another.
Traffic volume is a key factor in success or failure in electronic commerce. So the stakes are high.
Financial details of the proposed acquisition and subsequent resale to Sun Microsystems were unavailable. The companies either could not be reached or would not comment Sunday.
Last week Netscape and AOL stocks each rose more than $10 a share on rumors of a partnership said to include distribution of Netscape’s browser by AOL.
Netscape stock peaked at $87 in late 1995, a few months after its initial offering. The stock this year fell as low as $14.88 before it rebounded to $39.19 Friday. AOL closed at $84.88 Friday, having risen 275% this year as part of the stock market’s frenzy over companies related to the Internet.
This is not the first time AOL and Netscape have considered an alliance. In late 1995, before Internet Explorer became a major threat to Netscape’s hold on the browser market, AOL Chairman Steve Case negotiated with Netscape to distribute the company’s browser to his millions of subscribers.
Netscape wanted the deal with AOL, according to a characteristically blunt e-mail sent by co-founder Marc Andreessen “to use our unique strengths to kick the [expletive] . . . out of the Beast from Redmond that wants to see us both dead,” a clear reference to Microsoft.
But the talks bogged down, and AOL chose in March 1996 to distribute Microsoft’s Internet browser in a deal that stirred harsh feelings at Netscape.
The two companies’ fortunes have diverged in the past two years. AOL became the premier route to online access, standing well above competitors. Meanwhile, Netscape has struggled to hold off Microsoft’s relentless pressure to overtake the Web browser market.
But details of past negotiations between Netscape and AOL have surfaced as part of the antitrust lawsuit against Microsoft. If the AOL-Sun-Netscape deal reaches fruition, Microsoft will probably use it as ammunition in its defense.
Microsoft’s legal consultant, Charles Rule, a former senior Justice Department official, said the proposed acquisition is precisely the type of cooperative venture that the government alleges was improper for Microsoft even to attempt.
Among the government’s charges is that in June 1995 Microsoft tried to enlist Netscape in a plan to divide the market for certain kinds of Internet software.
“Unless they’re about to go and criminally charge the Netscape and AOL and Sun people, which they aren’t, then they can’t claim these kinds of negotiations are improper,” Rule said. “AOL and Sun are dividing up a business along some sort of market lines based on the strength of each company.”
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Associated Press contributed to this report.
To follow the unfolding events in the AOL-Netscape story and participate in a discussion on The Times’ Web site, go to: https://www.latimes.com/aol
