Monday May 8, 1:36 pm Eastern Time
Verio deal reflects push by voice firms into data
By Jessica Hall
NEW YORK, May 8 (Reuters) - The $5.5 billion takeover of Verio Inc. by a unit of Japan's telephone giant Nippon Telegraph and Telephone Corp. reflects the push by voice companies to gain Internet expertise to serve multinational customers and broaden their geographic reach, analysts said.
``It's clearly a continuation of the trend of voice service providers acquiring leading providers in data services space. It really validates the value of assets that the (data) companies have,'' said CIBC World Markets analyst Steve Murphy.
Tokyo-based NTT Communications, a unit of NTT (NYSE:NTT - news), on Monday agreed to acquire Englewood, Colorado-based Verio for $5.5 billion, or $60 a share, in cash. NTT is paying a 67 percent premium over Verio's stock price on Friday.
``This is the largest cash deal in the Internet or network space, and it is a strong positive for hosting/ISP sector highlighting the scarcity value of their assets and potential for acquisition'' by foreign companies, Baby Bells and smaller local telephone companies, Lehman Brothers analyst Bill Garrahan said in a research report.
Verio, one of the largest independent Internet services companies, primarily served companies with less than 200 employees. Together, Verio and NTT will be able to provide high-speed data services and Web site management to small and large companies.
Other PTTs, or the dominant foreign telephone carriers, may follow NTT's move and acquire other data firms in an effort to broaden their services and defend against U.S. companies such as WorldCom Inc. (NasdaqNM:WCOM - news), which want to provide voice and data services globally, analysts said.
``It's hard for voice companies to get in quickly on their own...international providers don't have data assets or assets outside their own region. The PTTs need to have data services,'' Murphy said.
U.S. telephone companies such as Qwest Communications International Inc. (NYSE:Q - news), AT&T Corp. (NYSE:T - news) and WorldCom also have aggressively expanded their data and Internet services so they can provide complete packages of communications services for their multinational clients.
NEXTLINK Communications Inc. (NasdaqNM:NXLK - news) in January agreed to buy Internet access provider Concentric Network Corp. for $2.9 billion. McLeodUSA Inc., which provides local and long-distance services in the Midwest and Rocky Mountain states, bought SplitRock Services Inc.
Other acquisition candidates include Exodus Communications Inc. (NasdaqNM:EXDS - news), Applied Theory Corp. (NasdaqNM:ATHY - news), Globix Corp. (NasdaqNM:GBIX - news) or even smaller companies such as MSI Holdings Inc. (OTC BB:MSIA.OB - news), analysts said.
``These companies are fairly niche players'' but still offer assets or expertise that would appeal to international and U.S. companies, said Lori Alexander, an analyst with Preferred Capital Market.
PSINet Inc. (NasdaqNM:PSIX - news) also has attractive assets, but analysts doubted it would be acquired since it has prided itself on its independence.
Verio, which acknowledged it had been approached by several companies in recent years, could even attract a second bidder, some analysts said. The NTT-Verio deal carries a $175 million break-up fee.
Other analysts, however, doubted a new suitor would be able to top NTT's $5.5 billion cash offer. Verio said cash -- instead of the more typical stock swap -- was an attractive currency given the recent slump in technology and Internet stocks.
``We felt the premium here was extraordinary in terms of cash. In the prime of some significant market volatility the certainty of a cash deal and the powerful combination...made it a compelling offer for us,'' Verio Chief Executive Justin Jaschke said in an interview on cable television station CNBC.
Shares of Verio surged 22-11/16, or 63 percent, to 58-5/8 in heavy afternoon trading on Nasdaq. Before Monday's rise, the stock had fallen about 22 percent. |
