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Digital Island nabs SoftAware
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July 17, 2000: 7:20 p.m. ET
Digital Island to buy SoftAware Networks for $450M in cash, stock
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NEW YORK (CNNfn) - The Web hosting and Internet content delivery company Digital Island said on Monday that it will acquire SoftAware Networks, another Web hosting and content delivery company, for $450 million in cash and stock.
San Francisco-based Digital Island (ISLD: Research, Estimates) agreed to buy privately held SoftAware for approximately 9.375 million shares of Digital Island common stock and $20 million in cash. Based on Digital Island's closing price on July 14, the transaction is valued at about $450 million.
SoftAware had only $4 million in revenue in the most recent quarter, meaning that Digital Island is paying a high multiple for the emerging company. Marshall Rockwell, SoftAware's founder, will join Digital Island.
In an interview with CNNfn.com, Ruann Ernst, the chairman and CEO of Digital Island, said that she expects the transaction to close in the September quarter and add to the company's revenue in the next fiscal year. The acquisition will be "slightly negative" to Digital Island's earnings before interest, taxes, depreciation and amortization (EBITDA) for the next two or three quarters and add to EBITDA after that, she said.
 Digital Island said that the acquisition will add more than 550 clients to its roster, bringing its combined total to more than 900 worldwide. The average customer size at SoftAware, which focuses on media and entertainment clients in California, is much smaller than at Digital Island, Ernst said.
Digital Island provides the infrastructure for Internet applications, including giving companies the ability to access a private network that is faster and more reliable than the public Internet.
Posts $100 million third quarter loss
Digital Island also announced its third fiscal quarter results after the close Monday. Revenue in the quarter ended June 30, grew to $16.1 million from $3.7 million in the same period last year. However, its net loss for the period ballooned to $100.2 million from $14.1 million in last year's quarter. About half of the $100.2 million net loss came from the amortization of intangible assets. Its loss per share for the third quarter amounted to $1.51, versus $3.96 in 1999.
However, Digital Island has plenty of cash on hand to absorb its losses. The company ended the quarter with $700 million in cash and $150 million in lease financing, Ernst said.
In June, Digital Island announced that it is working with Compaq Computer, Intel and Microsoft to build the Internet's first broadcast-scale streaming media network capable of supporting up to 7.5 million simultaneous media streams.
The company's stock closed Monday at 44-5/8, down 71 percent from its 52-week high of 155-15/16. 
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