AOL in talks to buy Netscape

Netscape and AOL have confirmed they are in negotiations for a merger deal that could shift the balance of power in the online world. According to press reports in the US, Sun Microsystems may also be involved in the deal.

The discussions involve a stock-for-stock, pooling-of-interests transaction in which Netscape stockholders would receive 0.45 shares of AOL common stock for each share of Netscape common stock, according to Netscape. A merger could be worth at least $US4 billion, based on the market capitalisation of Netscape.

Sun, AOL and Netscape reportedly were in talks all week and over the weekend but have not yet reached an agreement.

The leaked details include AOL taking over Netscape's Web portal, "Netcenter," as well as the company's popular Web browser software. Reportedly, Sun would take over the enterprise side of Netscape's business and pay AOL a fee for using Netscape technology. Netscape currently sells a number of business applications, including those used for messaging, groupware and electronic commerce applications.

The deal would mean that AOL would retain the Netscape brand name and would not involve any staff layoffs, according to the reports. Netscape's president and CEO, James Barksdale, has reportedly been offered a seat on AOL's board of directors as part of the deal.

Sources familiar with the deal reportedly said that the acquisition of Netscape would put AOL in a position to get a huge amount of electronic commerce on the Web. AOL has some 14 million subscribers, while Netscape's Netcenter gets about 20 million visitors per month. Analysts see AOL, strengthened by Netscape's technology and users, as a potential threat to Microsoft's growing e-commerce ventures.

The proposed merger could have far reaching effects on the US DoJ's antitrust case against Microsoft, the company's top in-house legal advisor saying the pending deal torpedoes the US Government's case.

"This proposed deal would be a dramatic change in the competitive landscape. The leading browser company, the dominant online service company and a leading computer company would be joining forces," said Bill Neukom, a Microsoft vice president and head of the vendor's legal affairs. Neukom made the statement outside the courthouse here where Judge Thomas Penfield Jackson is hearing the case against Microsoft.

"This proposed deal demonstrates a simple truth - there is vigorous competition in the marketplace and Microsoft faces resourceful and creative competitors," Neukom said. "From a legal standpoint this proposed deal pulls the rug out from under the government. In fact the mere possibility of this kind of combination completely undermines the government's case from start to finish."

The pending Netscape-AOL deal shows that Microsoft does not have a stranglehold on the computer industry, Neukom said.

"The government should not be taking sides in such a dynamic and competitive industry," Neukom said. "As this deal shows, the marketplace is always five steps ahead of government intervention."

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