AOL may buy Netscape in $4 billion deal
America Online is in talks to acquire Netscape Communications in a stock swap, and a deal could be announced this week, according to published reports.
As part of the deal, Sun Microsystems also could gain control of Netscape's business software operations. If completed, the deal would help both AOL and Sun compete against Microsoft. The reports cautioned, however, that the deal might collapse.
Newsweek reported that AOL and Netscape held "serious discussions" this weekend, "locking and loading" for a possible announcement this week. It said terms were "murky," but the stock swap could be valued at about $4 billion. AOL would cut a deal with Sun to sell and develop Netscape's business software in exchange for revenue guarantees, according to Newsweek. One source told CNET News.com that talks intensified on Friday.
Reports in the Wall Street Journal, the New York Times, and the Washington Post were similar. The Journal said that AOL would take control of Netscape's Netcenter Web site and also Netscape's Web browsing software. The Journal also reported that AOL, Netscape, and Sun had been in talks "all week and over the weekend."
Netscape declined comment. AOL and Sun could not be reached for comment.
The deal would make sense, said Peter Krasilovsy, an analyst with Arlen Communications. AOL "becomes a major player in an anti-Microsoft coalition and Sun takes some of the unneeded resources off its hands."
It would give AOL "a portal it so desperately needs," Krasilovsky said. Although AOL generates a large volume of traffic, it is not clear whether it is drawing new Web users or merely AOL members who are trying to access information, such as Web email related to their memberships.
As for Netcenter, "The traffic driven to it from the browser continues to be large," he noted.
Krasilovsky also pointed out that the structure of the deal is similar to the three-way deal AOL cut with CompuServe and WorldCom more than a year ago.
"This deal would put two large giants--AOL vs. Microsoft--on equal footing," said Abhishek Gami, an analyst at William Blair.
On its own, Netscape might find it difficult to compete against Microsoft's MSN.com on the Web, according to Gami. He added that gaining control of Netscape's Web browser business may be even more important to AOL.
According to Newsweek, Microsoft "may not view the potential deal so sweetly," but AOL still plans to keep using Microsoft's browser in its software.
Last week, rumors surfaced that AOL and Netscape were in negotiations over making Navigator the online giant's default browser.
This has been raised in the U.S. government's high-profile antitrust case against Microsoft. An AOL executive last month testified that AOL chose the Internet Explorer browser instead of Netscape's because it received a coveted spot on the user's desktop from Microsoft.
Microsoft lawyers took issue with criticism of the deal, stating that AOL already had obtained placement on Windows before it signed onto the deal, and that Microsoft didn't strongarm anybody.
CNET News.com's Aimee Male contributed to this report.