On the one hand, most analysts and investors say they like the deal, which they describe as a good fit that will boost VeriSign's stock once the company is able to tell its story on the Street. The deal pairs VeriSign's Internet security business with Network Solutions' Internet registry service.
But the trading in the stocks may indicate otherwise, says one analyst at the
Chase H&Q plaNET.wall.street
conference in Snowbird, Utah.
Under the deal, Network Solutions shareholders will get 2.15 VeriSign shares for each Network Solutions share. With VeriSign shares off 18% at 201, the deal values Network Solutions at around 430. But Network Solutions shares are trading some 20 points short of that, up 14% at around 410. While that's a narrower spread than what prevailed earlier in the day -- Network Solutions shares were fairly steady, while VeriSign's continued to slide -- it still may indicate some uncertainty.
"That probably means people don't think the deal will go through," says Mike Dubrow, an analyst with
Jacob Asset Management
, which doesn't own either company's stock.
Dubrow, one of many investors buzzing about the acquisition at the conference, questions the deal's necessity. VeriSign and Network Solutions already have a relationship that includes a board seat for VeriSign CEO Stratton Sclavos, he says. The price tag, therefore, seems like an awfully steep price to pay to simply own the company.
Dubrow also says the deal presents regulatory issues. "With VeriSign owning about 80% of their market and Network Solutions owning about 80% of theirs, that might be something the
is interested in."
But other analysts aren't persuaded. "Network Solutions does not have a monopoly on its services, and there's still competitive fair game out there," says Martin Pyykkonen, an analyst with
CIBC World Markets
, which has a buy rating on VeriSign but no underwriting relationship. "I don't see that there's an issue out there."
Indeed, illustrating the value of the domain name registry business, which is rapidly broadening to include services that can be combined with the initial sale of a domain name, investors drove up shares of Network Solutions rival
23 1/8, or 46%, to 73 1/4.
Pyykkonen points out that VeriSign, which at first glance looks like an encryption company, has been moving in the direction of becoming a B2B hub for e-commerce, most notably with its recent acquisition of
, a private e-commerce payment company. "What VeriSign is saying is we're using our stock currency to basically bring these things together so we can offer bundles of services," says Pyykkonen.
Ken Smith, co-portfolio manager with the
fund, agrees. "They're complementary, because you're going to need security if you register a domain name, assuming it's for e-commerce," Smith says, referring to Network Solutions' 8.1 million-name customer base. "This gives VeriSign first crack at a lot of people." The Munder NetNet fund has holdings in both VeriSign and Network Solutions.
As far as the VeriSign's retreating shares, Smith says it's just a matter of informing investors. "A lot of shareholders need to be educated on the rationale for the deal," he says. That education had better come soon.