AOL, Netscape keep up $4 billion negotiations

America Online Inc., the world's largest Internet provider with more than 14 million subscribers, confirmed yesterday it is negotiating an all-stock deal to buy Netscape Communications Corp., whose "Netcenter" Website is among the four most popular on the Internet with more than 20 million visitors each month.

The AOL, Microsoft and Yahoo! sites are the other three most popular.

In addition, AOL would acquire Netscape's pioneering Navigator browser software, which was introduced in 1994 and helped popularize the Internet. The software is now used by millions of people to view information on the Web.

AP PHOTO Netscape Communications Corporation President Jim Barksdale testifies on Capitol Hill before the Senate Judiciary Committee in March. America Online Inc. confirmed yesterday it is negotiating to buy Netscape.

In a side deal under consideration, Sun Microsystems Inc. would take control of Netscape's business-level "server" software and, in return, AOL would buy Sun's powerful workstation computers.

"Sun is dying to get into the software business, so owning Netscape's software business would increase their ability to get into that market," said Stan Dohlberg, a consultant at Forrester Research Inc.

Netscape, which separately confirmed the negotiations, said its shareholders would receive .45 shares of AOL stock for each of the 99.5 million outstanding shares of Netscape stock.

AOL traded most of yesterday in the high-$80s, making the deal worth between $3.8 billion and $4 billion, although the price briefly peaked at $91.63, its highest ever.

The companies have been negotiating for at least two weeks, and talks continued yesterday. Both AOL and Netscape cautioned in statements that "there can be no assurance that an agreement will be reached or a transaction consummated."

The alliance would pose dramatic new competition for industry giant Microsoft, whose own business tactics against Netscape are so aggressive that the federal government is suing it for alleged antitrust violations.

Microsoft's Internet software competes directly against Netscape's, and its Microsoft Network online service is a rival to AOL, although MSN has been far less successful.

Sun competes against Microsoft in several areas, from rival operating systems to its Java technology that runs programs on many types of computers, not just those using Windows.

All three companies share a general disdain toward Microsoft - all are testifying, for example, on behalf of the government at Microsoft's antitrust trial in Washington.

"The major driver of this has been the personal connections between the principals in this deal, who have a common mission to be successful but also a common secondary goal to win at Microsoft's expense," said Frank Gens, chief analyst for International Data Corp.

AOL agreed in March 1996 to incorporate Microsoft's Internet Explorer browser, not Netscape's, into the software for its 14 million subscribers. In exchange, Microsoft included AOL's software within its dominant Windows operating system.

Analysts were divided on whether AOL might jeopardize its placement within Windows by distributing Netscape's software to its customers. That move could restore Netscape's share of the browser market to its highest levels since Microsoft began its full-court competition.

"It seems to me pretty clear, if this deal happens, that AOL customers will be seeing a very strong marketing of the Netscape browser to them," said Gens. "... If Netscape and AOL get together, AOL and Microsoft's friendship will be cold and somewhat short-lived."

As Microsoft's antitrust trial entered its sixth week, the company was quick to claim that the AOL-Netscape proposal proves the government's case is moot, given the fact that Microsoft may soon have a new super-rival.

"It would mean the leading browser company and the dominant Internet service company and a leading computer company would be combining forces," said Microsoft attorney Bill Neukom.

The deal "demonstrates a simple truth, that there is vigorous competition in the marketplace and that Microsoft faces resourceful and capable competitors," Neukom said.

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