VeriSign yesterday moved to buy domain name registration company Network Solutions (NSI), but within hours the value of the deal had dropped by a third.
The deal was billed as a mega-takeover when it was announced yesterday morning, worth $21bn based on opening share prices. But by the end of the day investors drove down the digital certificate specialist's share price in the belief that it was paying too much, thereby reducing the value of the deal to $14bn.
Stratton Sclavos, VeriSign's chief executive, justified the cost by saying: "NSI is a fabulous business. It is one of the highest revenue companies on the internet as well as one of the ones that has been generating the most profit."
He added that NSI had some nine million customers and the figure is growing dramatically every quarter. "We can now turn the VeriSign services on to those customers and hopefully generate more revenue per customer and create a one-stop shop for ecommerce trust," he said.
VeriSign plans to issue 2.15 shares for each NSI share. This originally valued each NSI share at $531.99 or a 48 per cent premium over the $360.63 price that NSI's shares closed at on Monday night. NSI said it has about 39 million shares outstanding.
But the value of the 2.15 shares had fallen to $430 by the close of trading on Tuesday after Versign's share price fell by more than $47 to $200.
VeriSign is the smaller of the two companies. In fiscal 1999, NSI generated revenue of $220.8m on net profit of $26.9m, while Versign's sales were $84.8m and its net profit $4m.
NSI's future had appeared a little uncertain after it lost its .com, .net and .org domain name monopoly and was told by the US government that it had to separate its registry and registrar businesses by 2003.
But analyst reaction to the move was muted. David Zale, an analyst at Sands Brothers, said: "VeriSign has had a very nice, upwardly sloping business model, in which it has outperformed every quarter. NSI is a different animal. There's a little uncertainty."
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