VeriSign to Pick Up Illuminet

Sep 24 2001

MOUNTAIN VIEW, Calif. -- VeriSign Inc. said it has agreed to acquire Illuminet Holdings Inc. for $1.2 billion in stock as part of a plan to become a player in the growing market for services that combine elements of the Internet and traditional telephone networks.

The announcement confirmed a report in The Wall Street Journal.

VeriSign , Mountain View, Calif., said it will issue 0.93 share for each of the 32.7 million shares outstanding of Illuminet, which values Illuminet shares at $35.62 a share, just 2% more than its price of $34.98 at 4 p.m. Friday in Nasdaq Stock Market trading.

Illuminet, Olympia, Wash., operates the largest independent "signaling system" in the U.S., a network that enables telephone carriers to seamlessly connect voice calls across their disparate networks. The company's signaling system also plays an important behind-the-scenes role in enabling modern phone conveniences such as caller ID and wireless-phone roaming. Illuminet, which posted a $19 million profit on $91.7 million in sales for the first six months of the year, has more than 900 telephone-carrier customers that use its services, including AT&T Corp., WorldCom Inc. and Sprint Corp., says Roger Moore, Illuminet's chief executive.

VeriSign has become the Internet equivalent of a gatekeeper, running everything from a credit-card processing network to security services that make electronic-commerce transactions possible. Through its acquisition of Network Solutions Inc. last year, VeriSign also took over the operation of significant pieces of the Internet's technical underpinnings, including a constellation of 12 industrial-strength computers around the world that effectively look up a numerical address that corresponds to the dot-com, dot-org and other addresses users type into their Web browsers. VeriSign handles 1.5 billion such look-ups a day.

VeriSign reported a loss of $12.57 billion, or $62.65 a share, on charges for the six months ended June 30. The company posted revenue for the period of $ 444.61 billion.

Stratton Sclavos, VeriSign's CEO, said Illuminet's services are similar to VeriSign's, though for a different set of customers -- the carriers. "They are, in many respects, the VeriSign of voice networks," Mr. Sclavos told the Journal.

Mr. Sclavos said he and Mr. Moore had been exploring possible partnerships for more than a year, but began to talk about an acquisition during the past two weeks. He added that the Sept. 11 terrorist attacks in the U.S. delayed negotiations for a couple of days.

Mr. Moore will join the VeriSign board and become an executive at the company.

Although VeriSign's shares are well off their high from September 2000 of $ 214.38, its shares have performed far better than most Internet stocks, giving the company a relatively solid currency to make acquisitions. Shares of VeriSign closed down $1.69 to $38.30 in 4 p.m. Nasdaq Stock Market trading on Friday.

The acquisition of Illuminet will be accounted for as a purchase, the companies said.

Illuminet's business will expand the breadth of VeriSign's digital trust services portfolio, which includes Web identity, authentication and payment services, VeriSign said. The services are supported by an infrastructure used to conduct more than five billion domain-name system searches, 100 million database queries, and millions of secure commerce and communications transactions daily.

The deal could inflame critics of VeriSign who have attacked an arrangement the company struck earlier this year with the U.S. Department of Commerce to retain control over the registration of dot-com Web addresses until 2007. Mr. Sclavos said he doesn't anticipate any serious regulatory hurdles to the deal since Illuminet serves a different market than VeriSign. The companies expect the acquisition to be completed by the first quarter of 2002.

Credit Suisse First Boston advised VeriSign on the deal, while Robertson Stephens advised Illuminet.

The acquisition has been approved by the companies' boards and is subject to various closing conditions, including government approvals and consent by Illuminet shareholders.