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To: Glenn D. Rudolph who wrote (28058)	11/25/1998 9:14:00 AM
From: Glenn D. Rudolph	Respond to of 164684

AOL-NETSCAPE DEAL GETS PRE-BLESSING BLESSING By Peter D. Henig Red Herring Online November 23, 1998 Even though the proposed buyout of Netscape (NSCP) by America Online (AOL) has yet to be inked, Wall Street has already given it the thumbs-up. All the stocks in the Internet sector had a monster day of gains, even though the deal solidifies AOL as a powerhouse that could potentially garner even more market share in advertising and e-commerce. In a deal purportedly valued at $4 billion, shareholders of Netscape would receive 0.45 shares of AOL stock (which closed Monday at 87 7/16) for each share of Netscape's stock. Also part of the widely publicized deal -- which was clearly leaked to the Wall Street Journal over the weekend -- is Sun Microsystems's (SUNW) third-party interest in Netscape's enterprise software business. As of the close of trading on Monday, none of the companies involved had confirmed a buyout; the switchboard operator at Netscape told us that no one was even in. But on a day when mergers dominated the news in trading circles, AOL's latest push toward CEO Steve Case's goal of "AOL Anywhere" found few detractors, except for the usual suspects who can't understand why Internet stocks only go up. Cementing the AOL hegemony "It's a good deal for AOL," says Tony Blenk, analyst with Everen Securities, probably for the 400th time today. "It expands their reach up to 65-70 percent from its current range of 45 percent." Any analyst could do the simple math and calculate that AOL wins on a number of fronts: pageviews, registered users, additional partnerships for AOL.com, extra advertising space to sell. But what has some analysts thrilled, and others scratching their heads, is the fact that the deal -- an unconfirmed one, at that -- has once again stretched across Internet stockdom and boosted valuations from Yahoo (YHOO) to Excite (XCIT) to Lycos (LCOS) to Microsoft (MSFT), even. "All of these other stocks are up on notions of possible multi-billion dollar buyouts," says David Simons, managing director with Digital Video Investments. "But why are investors pumping up these other stocks as if they were worth more, when they actually might be worth less? The market has no notion of competition." If it purchases Netscape, AOL will have lined up most, if not all, of its ducks to go head-to-head with Microsoft's MSN and online initiative. With locked-in browser horsepower under its hood, AOL effectively picks up half the browser market -- and the roughly 70 million users who go along with it. "It now raises a new question ... which is the greater evil, MSN or AOL?" asks Mr. Simons. Although one look at the market suggests that neither of them own the Internet just yet -- as judged by the positive performance of all of the portals on Wall Street today -- an AOL-Netscape deal would surely change the Web landscape. The new math "It's all about vertical integration across access, across browser, across advertising commerce deals," says Dana Serman, Internet analyst with Schroder & Co. "And this will complete that deal for AOL ... so you're down to two titans. But the market isn't punishing the others who aren't in those two camps." If anything, it is rewarding them. Though many players are still chasing the same piece of the total $180 billion advertising pie, many media companies, both virtual and bricks-and-mortar, have been able to maintain high valuations. "At the end of the day, it's more than a two-player race," says Mr. Serman, "but what's interesting to me is why, after a deal like this, should Microsoft go up 6 points and Yahoo go up 23? Why does 2 plus 2 always have to equal 5?" Everything that rises That's a fair enough question, particularly when Microsoft still has money to burn on a future buildout of its online initiative. Microsoft's $9-10 billion in cash "gives it a lot of juice to play with," as Mr. Serman puts it. But it still doesn't change the fact that advertisers will have only a set amount of money to spend, and the market can only factor in expanding e-commerce revenues for so long. Although mergers always tend to generate the expectation of further buyouts within an industry, this realignment of major players may not extend to other Internet properties. With Yahoo at a market cap of over 20 billion dollars, it would take a monster to gobble up that enterprise. Wall Street is also quietly speculating that once the post-Thanksgiving holiday shopping season is put to bed, investors may choose to gorge themselves on profits until after Christmas, deflating stocks that are trading at or above their all-time highs. "Do all boats rise with a rising tide?" asks Mr. Serman. "I tend to believe all boats don't rise."