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Last Update:
10 May, 2000

NTT Sets Deal to Acquire
Rest of Verio for $5 Billion

By NIKHIL DEOGUN and STEVEN LIPIN
Staff Reporters of THE WALL STREET JOURNAL

The WSJ
May 8, 2000

Nippon Telegraph & Telephone Corp., the Japanese phone giant, has agreed to acquire the 90% in Verio Inc. that it doesn't already own for $60 a share, or more than $5 billion, according to people familiar with the matter.

The transaction would represent one of the largest cash purchases of an Internet-services company -- a sector where most deals are stock-swap transactions. It would also signify how large global companies are eager to team up with fast-growing technology companies and tap into their expertise on the Web.

Verio, based in Englewood, Colo., bills itself as the largest operator of Web sites for businesses and a leading provider of comprehensive Internet services. At the end of the first quarter, Verio said it hosted 395,000 Web sites and 14,000 e-commerce sites.

Satoshi Fujita, senior vice president at the acquiring unit, NTT Communications Corp., confirmed the deal. A spokesman for Verio said there had been a "lot of rumors" but declined to comment further.

Verio is said to have attracted interest from other telecommunications companies, and it isn't clear if a rival bidder will try to trump the Japanese telecommunications behemoth. NTT's offer represents a whopping 67% premium over Verio's 4 p.m. Friday price of $35.9375, up 93.75 cents, on the Nasdaq Stock Market. At 4 p.m. Friday on the New York Stock Exchange, NTT's American depositary shares closed at $66.25, up $2.0625.

One reason NTT is likely to have been able to pay more than other bidders is that it already owns about 10% of Verio. It acquired that stake for about $11 a share, making its cost for owning all of Verio closer to $55 a share, according to a person familiar with the matter. Besides, Verio's stock was trading as high as $84 a share a little over two months ago -- before technology stocks took a beating.

At the end of the first quarter, Verio reported a net loss of $73 million, or 93 cents a share, on revenue of $81.1 million. Verio raised $126.5 million when it went public in May 1998 at $23 a share. The company has purchased numerous Internet companies but has long been considered a takeover target. In part, that is because Verio's chief executive, Justin L. Jaschke, has experience in building and selling a company. He served as president of OneComm Corp. where he helped build a 23-state digital mobile-communications network, which was sold to Nextel Communications Inc. in 1995 for $650 million in stock.

For NTT, an acquisition of Verio would jump-start the Japanese company's Internet-services business and help make it a global player. The company is making a major push in this area, recently predicting that Internet-related businesses and mobile communications will account for 70% of revenue by March 2003, up from 50% currently. NTT is already becoming well known in many overseas markets because of the rapid growth of NTT DoCoMo Inc., the mobile-phone subsidiary that is publicly traded.

The deal also shows how corporate Japan, after a hiatus, is starting to invest aggressively in different parts of the world, driven in part by increased globalization and the need to compete effectively in telecommunications and other high-growth industries.

Deutsche Banc Alex. Brown and Merrill Lynch served as financial advisers to NTT, while Citigroup Inc.'s Salomon Smith Barney served as Verio's investment banker.

Bloomberg.com
Mon, 08 May 2000, 12:41am EDT

NTT to Buy Verio in $5 Bln Move Into U.S., Europe (Update3)
By Desmond Hutton and Junko Fujita with reporting by Hiroshi Suzuki

 

Tokyo, May 8 (Bloomberg) -- NTT Communications Corp., the international unit of Nippon Telegraph & Telephone Corp., said it will buy the shares it doesn't already own in Verio Inc., for $5 billion in cash, in a step toward creating a global network.

The NTT unit, which already owns 10 percent of Verio, will pay $60 a share, 69 percent more than its closing price in New York on Friday. NTT Communications will make the tender offer on May 17, the company said. ``The purchase of Verio will help us achieve our goal to become a global (Internet protocol) services provider,'' said NTT Communications President Masanobu Suzuki. ``This is the first step for us to become a full player in Asia, Europe and the U.S.''

Verio owns Web hosting and other Internet-related companies in the U.S. and Europe and is the world's largest Web hosting   service by number of domain names. NTT Communications also owns stakes in Philippine Long Distance Telephone Co., Thai Telephone & Telecommunications Plc and StarHub of Singapore.

NTT Communications, Japan's largest long-distance phone provider, will borrow money for the purchase from banks, Suzuki said. The transaction is expected to be completed within four months.

The move comes as NTT's rivals in Japan and abroad form global alliances aimed at enabling them to offer international, long-distance, local, voice and Internet services through a single provider, analysts said.

Verio

``Verio's expertise should add significantly to NTT's portfolio,'' said David Levy of Chase H&Q, who rates the stock a ``buy.'' ``We think that this acquisition by a large company like NTT would trigger a new wave of consolidations in Internet-related companies,'' Levy said. He declined to name companies he thought might be consolidating.

Verio, which had $258 million in sales in the year through December 1999, has been doubling its sales every year in the past several years, Suzuki said. ``And we believe the company will keep growth at the same pace in the future.''

The acquisition of Verio will also accelerate NTT's move into the business of building data centers, analysts said.
``NTT Communications is aiming at utilizing Verio's technology in its operations to build data centers to be used for e-commerce businesses,'' said Motoharu Sone, an analyst at Tsubasa Securities Co, who maintains a ``buy'' recommendation on NTT Corp.

NTT Communications said it will make no change in Verio's management, will keep the companies 2,000 employees, and will maintain the Verio brand name.

Deutsche Banc Alex Brown and Merrill Lynch & Co. advised NTT, and Citigroup Inc.'s Salomon Smith Barney Inc. advised Verio, the companies said in a written statement.

Verio Expansion

Englewood, Colorado-based Verio hosts almost 300,000 Web sites through its nationwide U.S. network of 190 Internet access points, linked by fiber optic lines leased from Qwest Communications International and others.

The company targets businesses with up to 1,000 employees. Its customers pay about $30 to $100 a month for Web-hosting services, said Deutsche Banc Alex Brown analyst Michael Bowen, who rates Verio a ``strong buy.''

PSINet Inc., based in Herndon, Virginia, is Verio's main competitor, though Verio is the ``behemoth'' in the shared Web-hosting business, said Bowen.

Exodus Communications Inc., a Santa Clara, California-based company that also manages computers to run other companies' Web sites, focuses on larger companies and offers more complex services, said Bowen. Exodus customers pay about $19,000 a month, he said.

Verio would like to expand into more expensive Web-hosting services and compete with Exodus, said Chase H&Q's Levy. With NTT Communications as its parent, Verio will now have the cash to pursue its expansion, he said. Levy rates Verio a ``buy.''

Verio said it gets half its revenue from Web hosting and other ``enhanced Internet services.''

The company was founded by Justin Jaschke, a former executive at Nextel and Norwest Venture Capital, with a plan to form a nationwide Internet services company by acquiring local Internet Service Providers. It has acquired more than 48 ISPs since its first, RAINet Inc. in April 1996.

Last year, Verio reported a net loss of $181.9 million on revenue of $258.3 million. Its shares have risen 11 percent over the past year.

Verio fell 2.5 percent, or 15/16, on Friday to 35 15/16. Verio competes against Exodus Communications Inc., which manages computers that run other companies' Web sites, among others. 

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