Tuesday November 24 11:31 AM ET
It's Official! AOL Buys Netscape
By TED BRIDIS Associated Press Writer
WASHINGTON (AP) - America Online will buy Netscape in a $4.21 billion deal that turns the world's largest Internet provider into a new superpower of the high-tech industry. It also effectively concludes Netscape's dramatic rise and fall as an independent Internet pioneer.
The agreement, announced today, includes Sun Microsystems Inc. (Nasdaq:SUNW - news), which will distribute Netscape's business-level software in exchange for AOL's purchase Sun's powerful computers.
AOL, already with more than 14 million subscribers, becomes the distributor of Netscape's hugely popular Internet browser software and the owner of two of the four most popular sites on the Web.
Netscape's site alone draws 20 million visitors each month. The other three most popular sites are operated by AOL, Microsoft Corp. (Nasdaq:MSFT - news) and Yahoo!. Steve Case, AOL's chairman and chief executive officer, said AOL will operate Netscape's site separate from its own.
''It was already one of the major portals, and Netscape has just a terrific brand,'' Case said of Netscape's Web site. ''We just want to take that Netcenter strategy to the next step and reach an even wider audience.''
The deal gives AOL remarkable reach and enough influence to challenge industry giant Microsoft's dominance in key areas.
''We plan to continue to work with Microsoft wherever we can,'' Case told The Associated Press today. ''We do recognize Microsoft is a major competitor in a lot of different areas, but we've always said we'd like to work with them wherever it makes sense.''
Although AOL considers Microsoft its rival, it agreed in March 1996 to incorporate Microsoft's Internet Explorer browser, not Netscape's, into software for AOL subscribers. In exchange, Microsoft included AOL's software within its dominant Windows operating system.
That agreement ends in January, but Case said AOL will continue to distribute Microsoft's browser. AOL will distribute a customized version of Netscape's browser to the 20 million customers of its ICQ video chat service.
''At this point, we are intending to continue using IE (Internet Explorer) and AOL because we believe it is very important that AOL continue to be bundled with Windows,'' Case said.
Under the deal, America Online Inc. (NYSE:AOL - news), based just outside Washington in Dulles, Va., is expected to operate Netscape Communications Corp. (Nasdaq:NSCP - news) as a separate division in Mountain View, Calif. But the 4-year-old company whose software popularized the Internet - and whose dramatic debut on the stock market was among the most successful ever - would cease to exist as an independent entity.
''The way great companies get built is through combinations, and this is a combination of a smaller company with two much bigger companies'' Netscape Chief Executive Officer James Barksdale told the AP. ''This is the way AT&T got built and a lot of other great companies at the turn of the last century, and we see that happening here.''
Barksdale will join AOL's board of directors, and AOL said it also wants to hire Netscape co-founder Marc Andreessen. But both Barksdale and Case said it was too early to tell whether any employees will lose their jobs.
Netscape shareholders will receive .45 shares of AOL stock for each of the 99.5 million outstanding shares of Netscape stock.
Over the next three years, Sun Microsystems will distribute Netscape's business-level ''server'' software, and AOL will use Sun's Java programming technology - which lets programs run on a variety of types of computers - to offer AOL services on what the company called ''next-generation Internet devices.''
''So, you don't have to have a big, old Microsoft desktop to use AOL services,'' Scott McNealy, Sun's chairman and chief executive officer, told AP today.
Sun also will pay AOL more than $350 million in licensing, marketing and advertising fees, plus other money. In return, AOL will buy $500 million worth of Sun's powerful workstation computers.
The companies have been negotiating for weeks.
''This was a fairly broad-ranging deal,'' McNealy said. ''Just getting all the i's dotted and t's crossed was a fairly significant effort.''
A Washington public-interest group run by Ralph Nader, the Consumer Project on Technology, promised to protest any AOL-Netscape deal. The group's director, Jamie Love, said its opposition in part stems from the market for Internet software - generally split among Netscape and Microsoft - already being too concentrated.
It also objected because many of the nation's hundreds of private Internet providers currently distribute Netscape's browser for licensing fees. Under the deal, those providers would indirectly be funding AOL, among their greatest rivals, by paying it fees for Netscape's software.
The alliance poses new competition for Microsoft, whose own business tactics against Netscape were so aggressive that the federal government is suing Microsoft for alleged antitrust violations.
Microsoft said the agreement undermines the government's lawsuit.
''This deal... drives home the central point that the marketplace can take much better care of consumers than can the government seeking to regulate high technology,'' Microsoft's lead in-house lawyer, Bill Neukom, said today.
Microsoft's Internet software competes against Netscape's, and its Microsoft Network online service rivals AOL, although MSN has been far less successful.
Sun competes against Microsoft in several areas, from rival operating systems to its Java technology.
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