Network Solutions Mulls Splitting Business

The firm will retain financial advisers to discuss separating its registry business from its registrar business.
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Network Solutions

(NSOL)

, the Internet gatekeeper that registers domain names and controls the database of those names, took steps Wednesday to separate the two functions.

The

company said it would retain financial advisers to discuss separating its registry business -- the database of names over which it has exclusive control -- from its registrar business.

It also announced a secondary stock offering and changes to its board of directors, both signals that the company is steeling for a fight with a rapidly growing field of competitors on the registrar side.

Shares of Network Solutions gained 3 7/16, or 1%, to 270 9/16 around midday. (Network Solutions closed up 4 13/16, or 2%, to 272 1/4.)

The Herndon, Va.-based company, a pioneer in the burgeoning domain name business, has enjoyed a monopoly of the registry business since late 1992, when it entered an agreement with the

National Science Foundation

to maintain the database of .com, .net, .org, .edu and .gov domain names.

The moves follow a series of agreements reached last month with the

U.S. Department of Commerce

and the non-profit

Internet Corporation for Assigned Names

. Under the terms of the agreement, the company's exclusive control of the registry business -- not including the .gov and .edu listings -- will last until 2003. If the company finds a way to split up the two businesses, its control of the registry will be extended until 2007.

"It's an acknowledgement of the changing focus in the business," said Robert Fagin, analyst for

Bear Stearns

, which hasn't done underwriting for the company, "from having to settle regulatory issues to competing in the marketplace."

Two board members, John E. Glancy and Donald N. Telage, are resigning. They were crucial to the company's negotiations with the government, analysts said. Glancy is a senior vice president of

Science Applications International Corp.

, an employee-owned military contractor based in San Diego.

"SAIC was good protection for them while they were negotiating with the Department of Commerce," said Ulric Weil, senior technology analyst for

Friedman, Billings, Ramsey

. Weil rates Network Solutions a buy, and his firm hasn't done underwriting for the company. "That was probably quite helpful in getting an ear in the government and getting some sympathy there."

Telage, a strategist and policy spokesman for Network Solutions, will stay with the company.

The secondary stock offering of 1 million new shares was priced early Wednesday, according to a spokeswoman for

J.P. Morgan Securities

, the co-lead manager of the offering. But a prospectus was not available, she said.

The company also announced a 2-for-1 stock split. The date for the split will be determined after the secondary offering is completed.

Science Applications also plans to sell 6.7 million shares, and other shareholders -- likely company insiders, analysts said -- will sell an additional 30,000 shares.

The sale will shave Science Applications' stake in the company to 23%.

"Part of the offering is geared toward setting up a significant war chest to thwart competition," Fagin said.

That includes companies like register.com and names.com, but weighty competitors like

America Online

(AOL)

have received accreditation from ICANN and begun offering registration services.

Just yesterday, ICANN announced the accreditation of 10 new companies to offer the service, joining 88 already accredited. Of those, 22 are operational. register.com registered 1/10 of the customers that Network Solutions did last year, Fagin said.

Network Solutions has made a series of moves to offer enhanced business services on the registrar side and an expedited name change service. It announced a partnership deal Tuesday to offer

CNET

(CNET) - Get Report

a domain directory.

"I wouldn't be surprised if they bought a security firm such as

VeriSign

(VRSN) - Get Report

, whom they're very close with," Weil said.

The Mountain View, Calif.-based company provides online encryption software. Stratton D. Sclavos, VeriSign president and chief executive, is a Network Solutions board member.