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Tech Industry

Foreign Net deals come fast and furious

Although domestic Internet merger and acquisition activity has been on the skids of late, transatlantic deals have changed the face of the market.

Last month's multibillion-dollar merger between Internet service providers MindSpring Enterprises and EarthLink Communications marked the largest U.S.-based Internet merger and acquisition deal in some time.

Despite that grandiose marriage, however, domestic Internet merger and acquisition activity has truly been on the skids of late.

It's difficult to pinpoint an exact cause to why merger and acquisition activity in the United States for Net firms has calmed. Proposed accounting changes by the Financial Accounting Standards Board (FASB), with respect to pooling of interest rules, may have scared potential partners from closing deals. Also, recent slumps in Net stock prices in the once-hot IPO market may have limited firms' ability to use stock as cash in acquisition deals. Finally, rising interest rates have made making deals more costly.

And the prospect of more domestic deals looks less favorable following the proposed MCI WorldCom-Sprint merger. After closing its $36 billion acquisition of MCI Communications less than a year ago, Worldcom's latest $129 billion deal may have raised the bar a bit too high. In the wake of a merger whose value eclipses the gross national product of New Zealand, companies could demand more from interested parties, possibly putting some deals out of reach for many.

As domestic Net deals slow, however, merger and acquisition activity among European companies is on the rise. Last month alone, more than 120 international merger and acquisition deals crossed the wires--a new record.

This activity is in line with the recent surge in European merger deals in general. More than $380 billion in deals were announced in Europe in the third quarter ending September, compared to $322 billion in domestic deals in the United States in the same period.

Aside from the increase in foreign deals, transatlantic merger and acquisition activity has truly stepped up this fall.

The September deals have been fast and furious. Concentric Network's $205 million buy of U.K.-based Internet Technology Group led the group of big European Net deals. Also of note was a $154 merger between two Irish concerns, Esat Telecom Group and PostGem.

Cisco Systems paid $65 million for Denmark's Cocom, a provider of high-speed Internet access solutions. Virginia-based PSINet acquired Chilean ISP Netline Communicaciones, while Galileo Communications acquired Denmark's Cypress. Additionally, Cisco, along with Reuters and Galileo Fund, formed an investor group to acquire a $2.1 million stake in NetToll, a French Internet payment company.

However, the most active participant in the foreign Internet M&A realm last month was Via Networks. The company acquired no less than a dozen businesses, including Brazilian ISP Dialdata Internet Systems, Germany's ISP INS Vertriebs, and Ireland's MediaNet.

There are also growing signs of more European acquisitions of U.S.-based Net concerns. For example, IFAO, a German provider of online travel services, recently acquired an 11 percent stake in Colorado-based for an estimated $20 million.

In sum, the Internet has lowered not only commerce barriers to enhance retail transactions, but also cut across national borders to permit greater global business integration.