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AOL, Netscape tie knot
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November 24, 1998: 3:47 p.m. ET
Link with Sun Micro formed; $4.2B deal seen challenging Microsoft
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NEW YORK (CNNfn) - America Online said Tuesday it will acquire Netscape Communications, a leading Internet browser company, in a $4.2 billion deal that sets the stage for a competitive tug-of-war with software titan Microsoft Corp.
Dulles, Va.-based AOL, the world's largest online service provider, said in a widely anticipated statement that the all-stock transaction with Netscape will significantly advance its "multiple brand strategy, broaden its audience reach and take its electronic commerce business to a new level."
Under terms of the deal, Netscape holders will receive 0.45 share of AOL's common stock for each share they own.
Based on AOL's last trade of $89.25 on Monday in composite New York Stock Exchange trading, Netscape shares would be valued at $40.1625, below their Nasdaq closing price of $41.94 on Monday.
Once the deal closes next spring, pending shareholder and regulatory approval, Netscape Chief Executive James Barsksdale will join AOL's board.
In a separate announcement, AOL struck an alliance with Sun Microsystems Inc. (SUNW) to develop the next generation of e-commerce solutions and Internet devices using Sun's Java technology.
Under the three-year agreement, AOL and Sun will develop and market products that help Internet users access America Online brands.
Sun will become a lead systems and service provider to AOL, with AOL committed to purchase systems and services worth $500 million at list price from Sun through 2002 for its e-commerce partners and its own use.
AOL will, in turn, receive more than $350 million in licensing, marketing and advertising fees from Sun, plus "significant" minimum revenue commitments.
"By acquiring Netscape and working with Sun to provide winning e-commerce solutions, we will be able to both broaden and deepen our relationships with business partners who need this additional level of infrastructure support, and to provide more value and convenience for Internet consumers," said Steve Case, chairman and chief executive of America Online.
"We share with Sun a vision for the future in which consumers will be able to access America Online brands anywhere, at any time, and from any device, and we believe that with this alliance, we can make this happen more quickly."
As part of the alliance, AOL and Sun agreed to develop the next generation Netscape Navigator and Communicator software clients.
Netscape Chief Executive James Barksdale said the companies were not currently in a position to discuss possible expansion or reduction in Netscape's workforce.
AOL (AOL) shares were up 4-1/2 at 93-3/4 in late-day trading; Netscape (NSCP) shares slipped 1-5/8 to 40-5/16, while Sun (SUNW) climbed 2-9/16 to 73-7/8.
Taking on Microsoft
After the news broke over the weekend that AOL was in talks to acquire Netscape, analysts speculated on what effect the transaction would have across the Internet sector.
AOL, an industry behemoth with 14 million subscribers, will acquire Netscape's Navigator and Communicator software, its e-commerce software, and its Netcenter Internet "portal" site, one of the 10 most-visited sites on the Internet.
For starters, with AOL gaining control over Netscape's Navigator Web browser, that product likely could regain some of the market share it has lost since 1996. That's when Microsoft Corp. decided to include its Internet Explorer browser for free within the Windows operating system, sparking a legal powderkeg that has Microsoft fending off antitrust allegations in court.
But Case said AOL will continue to bundle IE with the AOL online-service software.
"We work with Microsoft wherever we can," he told CNNfn. "We'll continue to bundle the Internet Explorer browser with AOL because we want to continue to have AOL bundled with Windows."
Case said one of the ways AOL would promote Navigator is by including its instant messenger technology within the browser.
The Justice Department and 20 states sued Microsoft in May, accusing the company of abusing its dominant share in the computer operating systems market to take over the Internet browser market from Netscape.
While Microsoft's legal team has said the deal illustrates that competition continues to thrive in the computer industry, lead Justice Department attorney David Boies said the deal could offer further proof of Microsoft's dominance.
"If AOL plans to continue to use the Microsoft browser after the acquisition because that's the only way they can get access to the [Windows] desktop, that's a pretty strong indication of the barriers to competition that Microsoft has created," Boies said.
Implications of the deal
The AOL-Netscape deal could spell trouble for several Web portals -- sites where users begin their Internet surfing -- because AOL will acquire Netscape's Netcenter portal site.
But those possibilities pale in comparison to the deal's potential to beat Microsoft to the punch in providing Internet access through a variety of consumer-electronics devices.
In fact, it's Sun's involvement that could end up being the trump card. AOL said it will use Sun's Java technology "to offer AOL services on selected next-generation Internet devices," such as set-top boxes that allow customers to surf the Web from their television sets.
Java is Sun's programming language that allows software developers to write applications that can run on a variety of operating systems.
"We've always believed in the long-term power of this medium to be available anytime and anywhere," Case said. [226K WAV] or [226K AIFF] 
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