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INTERNET–Network Solutions Sale Initiates New E-Biz Model

New Company Will Offer Vast Array Of E-Commerce Services

Two Internet powerhouses plan to introduce a new E-business model and change the way E-commerce is done.

The plan comes after last week’s announced merger of Mountain View-based VeriSign, Inc. and Virginia-based Network Solutions, Inc., which is partly owned by Science Applications International Corp. (SAIC).

Under the deal, VeriSign, which provides authentication, payment and validation services for E-commerce transactions, will purchase Network Solutions, the leading provider of Internet domain name registration, for $21 billion in stock.

Network Solutions, which has 1,000 employees worldwide, will become a subsidiary of VeriSign. San Diego-based SAIC, which formerly owned 23 percent of Network Solutions, will own 9 percent of VeriSign.

The exact dollar amount will be based on what VeriSign’s stock is trading at the close of the deal, which is expected in the third quarter of 2000. Late last week, VeriSign’s stock closed at about $240 a share.

The merger must be approved by the Securities Exchange Commission and by both companies’ stockholders.

The companies plan to offer businesses and consumers domain name registration, E-mail, Web site creation, E-commerce abilities, and other services such as secure extranet services, virtual private networks and global trading.

“I think this is a breakthrough business deal and model for the entire global Internet industry,” said Mike Daniels, chairman of Network Solutions and sector vice president for SAIC. “This is new and different.”

Being fresh is what the Internet is all about, Daniels said.

“You have to change constantly. That’s what we’ve learned in this business. You have to be bold and make major business decisions. This is the most dramatically changing technology industry phenomenon I’ve been involved in in the 30 years I’ve been in business.”

Anil Pereira, vice president of VeriSign’s Internet Services Group, is also thrilled about the industry’s growth. He said consumers will be the major beneficiaries of mergers like this one.

“If you think about utilities in the industrial age , electric, gas , we view our mission as creating the modern-day trust utility for the Internet,” Pereira said.

He said due to the success and growth of business-to-business and business-to-government E-commerce activities, Internet companies will begin to offer consumer-to-consumer services, such as message delivery hubs that allow the transfer of secure documents between individuals.

Accelerate E-Commerce

Pereira said the growth of such services will further accelerate the E-commerce economy.

“The more we enable E-commerce, the more we believe it will be good for the industry as a whole and hopefully spawn a new generation of businesses.”

Out of all this growth will also come an increasing number of mega-mergers like the one between VeriSign and Network Solutions, Daniels said.

“You’re going to see in the next one to two years increasing numbers of combinations of key segments in the market. In the future we will see some very large players emerge out of these combinations.”

Daniels also believes there will be an explosion of new E-commerce start-ups over the next couple of years.

“I do believe we’ll continue to see hundreds, if not thousands, of new start-ups in the E-commerce area,” he said. “Many of the people in the technology industry see that the action has shifted to Internet and E-commerce, so many of the folks get the entrepreneurial bug and start new companies.”

SAIC began to see the value of the Internet economy in the mid-1990s.

“What we did by acquiring Network Solutions in March 1995 was jump start SAIC in the global Internet marketplace,” said Daniels, who led SAIC’s roughly $4.8 million purchase of Network Solutions.

‘Strategic View’

“What SAIC has been able to do with Network Solutions is to get a complete strategic view globally of what markets SAIC should be involved in in the global E-commerce business area, and is now starting to pursue they key areas.”

Under the recent deal, SAIC will be the largest single shareholder in VeriSign.

Maintaining part ownership in Network Solutions has been a strategy that has worked well for SAIC, Daniels said.

Employee-owned SAIC first decided to sell some of Network Solutions’ stock to the public in 1997.

“We made that decision because the company was growing very, very fast, and we felt (the initial public offering) would help give it greater visibility in the marketplace and raise the funds to help finance it,” said Bill Roper, SAIC’s chief financial officer.

Network Solutions had a second stock offering in 1997, and a third one about a month ago. All three offerings raised about $2.5 billion.

“This is the first example that I know of in the country where a privately owned company took an Internet company into the public marketplace and has had, by Wall Street’s estimates, one of the greatest investment successes,” Daniels said.

He said the best part of it is SAIC’s 39,000 worldwide employees, as well as Network Solutions shareholders, have profited significantly from the successful offerings.

“This is a classic case in the global electronic commerce market where thousands and thousands of owners in a private company and in the public marketplace have benefited enormously. This is a different story.”

The merger between Network Solutions and VeriSign also opens up more business opportunities for SAIC, which supplies systems integration, technology and software services.

“I think the combination of the two companies taps into a huge market of business customers and consumers for a broad range of E-commerce activity,” Roper said. “As their customer base grows, it gives us an opportunity to sell software and services to a lot of their customers.”

Current VeriSign customers include eBay, Bank of America, Ford Motor Co., Texas Instruments and British Telecommunications. VeriSign, which has 500 employees, also has strategic alliances with companies like AOL, Netscape, Microsoft Corp., Dun & Bradstreet, VISA and Motorola.

Network Solutions, founded in 1979, has aligned itself with industry leaders such as IBM Corp., American Express, AltaVista and Yahoo!.

When SAIC acquired Network Solutions five years ago, the small firm was registering 1,000 domain names a week. Now Network Solutions registers several million each quarter.

Will SAIC spin off another Network Solutions?

“We have a number of activities inside the company that might be future candidates for similar transactions,” Roper said. “There are a lot of things going on here and there is a lot of technology here.”


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