Looks like they are getting serious(finally).
Technology News
Fri, 30 Jun 2000, 11:51pm EDT
Verio Shares Fall 6.8% on Concern U.S. Panel Could Block NTT Takeover Bid
By Aimee Picchi and Kim Dixon
Englewood, Colorado, June 30 (Bloomberg) -- Verio Inc. shares tumbled 6.8 percent after NTT Communications Corp., a unit of Japan's No. 1 phone company, said its purchase of the Internet- services provider was under scrutiny by a U.S. government panel.
NTT said it was told its $5.5 billion offer for Verio will be investigated by a Treasury Department-run federal committee that monitors the impact of foreign investment on national security. The panel must report its findings on NTT to President Bill Clinton within 45 days. Verio fell 4 1/64 to 55 31/64.
``People are concerned it might take another six weeks to two months to close it (the purchase), and they're not sure if there's another shoe to drop,'' said Jon Couchman at New York-based St. Claire Investments, a former Verio shareholder.
The proposed purchase is caught in the cross-fire of a trade dispute between the U.S. and Japan over fees that government-owned Nippon Telegraph and Telephone Corp., NTT Communications' parent, charges U.S. rivals like AT&T Corp. and WorldCom Inc. to connect traffic to its domestic system.
Some U.S. lawmakers have said NTT Communications, the long- distance subsidiary, shouldn't get wider entry to the U.S. through Verio until the parent company opens the door further to U.S. rivals in Japan, the world's second-largest economy.
NTT, whose bid for Verio was to have expired at midnight, New York time, said it would extend the offer to July 14.
Trade Tie
Jim Russell, senior fund manager for the Merrill Lynch Pacific Fund, said he thought it was ``possible'' the probe is related to the trade row. ``Certainly there are a lot of companies who want access to the Japanese market, and there are entrance barriers,'' Russell said.
NTT said the Committee on Foreign Investment in the U.S., a panel whose members include the secretaries of treasury, state and defense along with the attorney general and U.S. trade representative, will review ``law enforcement matters that relate to the Internet industry.''
The U.S. Department of Justice and the Federal Bureau of Investigation asked the company to cooperate in law enforcement, according to a NTT spokesman.
In NTT's view, the merger ``does not raise national security concerns,'' the company said. NTT said it's confident the Verio acquisition will close successfully.
`Highly Unusual' Probe
It is ``highly unusual'' for the Committee on Foreign Investment in the United States to launch an investigation, said Washington lawyer Keith Shugarman.
The panel usually studies sales of defense firms to foreign companies to ensure that sophisticated technology or weaponry doesn't fall into the wrong hands.
Under the law that created the interagency panel, takeovers of U.S. companies by foreign buyers can be blocked if the acquisition poses a threat to national security and there is no way to fix it, legal experts said.
The government is concerned about national security -- ``in the sense of the ability for hackers and anyone that can decode and get into computer programs between the two companies,'' said Mike Banks, a spokesman for the Morrow Co., which represents NTT and Verio.
The move to investigate NTT's purchase of Colorado-based Verio could put pressure on the Japanese government to accede to U.S. market-opening demands.
U.S. Trade Representative Charlene Barshefsky will press the NTT trade dispute with Japanese officials in talks starting July 10 before the annual meeting of the world's seven largest industrial countries in Okinawa, Japan. About 53 percent of NTT's stock is owned by Japan's Ministry of Finance.
If the issue isn't resolved there, the U.S. may file a complaint with the World Trade Organization, according to a letter Barshefsky sent to the House telecommunications subcommittee. Seven members of the panel wrote a letter last month balking at the Verio transaction.
In 1998, NTT agreed to cut the disputed access fees, although U.S. trade officials have demanded deeper reductions to promote competition.
FBI Reviews
The FBI has become more aggressive in reviewing telecommunications mergers involving foreign buyers to preserve its ability to conduct wiretapping, said privacy expert James X. Dempsey.
The bureau may be concerned that if Verio's Web hosting services are moved overseas they would be ``outside the physical control of the FBI,'' said Dempsey, senior staff counsel for the Center for Democracy and Technology, a Washington-based civil liberties and privacy organization.
The FBI wants to maintain the ability to conduct electronic surveillance of Web sites to identify people who download certain information or intercept e-mail, he said. Downloading of white supremacist literature from a Web site, for instance, might help identify suspect in a hate crime, Dempsey said.
British Telecom
When British Telecommunications Plc bought a 20 percent stake in MCI Corp. in 1994, the FBI imposed restrictions to ensure that switching of U.S. wireless traffic wasn't moved out of the country and beyond its wiretapping jurisdiction, Dempsey said.
In that case, the FBI was concerned that ``switching services for wireless communications would be handled on switches that would be physically located outside the U.S.,'' said Dempsey, who formerly directed oversight of FBI eavesdropping operations for the House Judiciary Committee.
NTT said in May it would buy the 90 percent of Verio it doesn't own to add corporate Web-site management services outside Japan. Analysts said NTT would gain an immediate presence in the U.S. and Europe by buying Verio, which runs 400,000 Internet sites for other companies.
A spokeswoman for Verio said the company wasn't involved in the investigation and added that she isn't familiar with the Committee on Foreign Investment.
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