AOL to Buy Netscape, and Contract with Sun Microsystems

(November 24, 1998)  America Online and Netscape Communications announced today that the online service company will acquire the browser, e-commerce, and portal company in a stock exchange valued at $4.2 Billion.  Simultaneously, AOL and Sun Microsystems announced a three year alliance to develop e-commerce products.  Microsoft hailed the deals as proof that it faces vigorous competition in the marketplace, despite allegations to the contrary by antitrust prosecutors.

America Online and Netscape described the acquisition deal in a statement, as follows:

"The stock-for-stock, pooling-of-interests transaction, in which stockholders of Netscape will receive 0.45 shares of AOL common stock for each share of Netscape common stock, is valued at $4.2 billion. It is expected to close in the spring of 1999, subject to various conditions including customary regulatory approvals and approval by Netscape's shareholders."

AOL stated that its pact with Sun Microsystems is "to enhance its delivery of e-commerce solutions".  AOL continued that:

"The companies will develop easy-to-deploy, end-to-end solutions for e-commerce based on the best available technologies and expand their sales channels to include each other's products and services. The three-year America Online-Sun agreements also will increase distribution and development of Netscape's enterprise software for corporate customers. The companies also will use Sun's Java technology to offer AOL services on selected Internet devices ..."

The Department of Justice has brought a Sherman Act antitrust action against Microsoft, which is based in significant part on allegations that Microsoft has acted improperly in its attempts to monopolize the browser market, including through the bullying of smaller companies like AOL and Netscape.  Indeed, AOL's David Colburn testified at the trial against Microsoft.  (See, Direct Testimony of David Colburn.)  Netscape's James Barksdale has testified against Microsoft in court, and before a Senate committee.

Microsoft has seized upon this three way deal as proof that the market is dynamic, competitive, and operating well without government interference.  William Neukom, Microsoft's General Counsel, spoke to reporters outside the federal courthouse in Washington DC where the antitrust trial is under way.  He proclaimed that "[t]he proposed deal demonstrates a simple truth: that there is vigorous competition in the marketplace, and that Microsoft faces resourceful and capable competitors."

Neukom often goes to the steps outside the main front door of the U.S. Courthouse to make statements to the press corps covering the trial.  Cameras and tape recorders cannot be used inside the building.  He continued:

"From a legal standpoint, this proposed deal pulls the rug out from under the government. In fact, the mere possibility of this kind of a combination undermines the government's case from start to finish. This lawsuit was designed to benefit competitors, not consumers. The proposed deal shows that the government's case was, and is, unnecessary. Microsoft's competitors have always had the ability and the resources to change the competitive landscape, and to do that virtually overnight."  (See, full text of Neukom's comments at the bottom of page.)

The Mountain View based Netscape began as a browser company, but has since transformed itself.  In addition to providing the Navigator and Communicator browsers, it now operates Netcenter (one of the most popular portals on the web), and develops enterprise and e-commerce applications.  Netscape offers a full suite of packaged applications for business-to-business and business-to-consumer Internet commerce, and Internet server software for building and hosting a variety of Internet applications.

AOL, which is based in the Northern Virginia suburbs of Washington DC, already includes the market leading AOL service, CompuServe, the AOL.COM portal, AOL Instant Messenger, ICQ, and Digital City.

AOL and Netscape also announced that James Barksdale, President and Chief Executive Officer of Netscape, will be joining America Online's Board of Directors after the transaction closes.

Barksdale is quoted in the prepared statement:

"America Online and Netscape share a common vision - to offer solutions that make it simple for businesses and consumers to participate fully in the Net Economy. The companies' complementary strengths promise to accelerate the adoption of e-commerce and Internet applications worldwide. This exciting partnership enables us to deliver even better and more complete products and services to both existing and new customers."