The exchange values Netscape at $38.19 based on Friday's close of AOL's stock. That's nearly a $4 billion value for Netscape, but lower than its closing price Friday of $39.1875 per share.
Shares of Netscape and AOL surged higher this morning on the news of the possible merger talks. Netscape stock jumped 6.86 percent, or 2.69 points, to 41.88, and has traded as high as 45.25 and low as 14.88 during the past 52 weeks. AOL stock climbed 3.09 percent, or 2.63 points, to 87.5. The company's shares have traded as high as 90 and low as 17.75 during the past 52 weeks.
"There can be no assurance that an agreement will be reached or a transaction consummated," Netscape said in a statement.
AOL also said that it is in talks with Sun Microsystems regarding a "possible development and marketing agreement for ecommerce and new Internet devices which would involve Netscape products, although there can be no assurance that any agreement will be reached."
Both companies released statements before the stock market opened today.
Netscape executives notified workers of the talks via an email message today and promised to update them on any developments. Some of the rank-and-file, who had been with Netscape for years, expressed sadness at the news that their company might be acquired.
Netscape also said it will post its quarterly financial results for the fourth fiscal quarter and full year ended October 31 at 2 p.m. PST tomorrow.
As reported yesterday, the two companies had been holding talks. The reports cautioned, however, that the deal might collapse. As part of the deal, Sun Microsystems also could gain control of Netscape's business software operations.
Analysts said the deal will help both companies compete against Microsoft. AOL will expand its so-called "portal" to compete against MSN.com, while Sun will expand its business software operations.
As Abhishek Gami, an analyst at William Blair put it yesterday: "This deal would put two large giants--AOL vs. Microsoft--on equal footing."
Microsoft executives wasted no time framing the potential deal as a sign that Microsoft's competitors are alive and well.
If the deal is consummated, it would be "a deal that would dramatically change the competitive landscape in the tech industry," said Microsoft general counsel William Neukom this morning, speaking outside of the courthouse in Washington before this morning's precedings in the ongoing antitrust trail against the software giant.
The deal "pulls the rug out from the government" and undermines the government's case, Neukom claimed. It "shows that the government's case was and is unnecessary."
"These negotiations prove once again that the competitive marketplace is five steps ahead of government intervention," he said. "The proposed deal demonstrates a simple truth that there is vigorous competition in the marketplace," said Neukom, who read from a prepared statement and refused to answer questions from the press.
News.com's Dan Goodin and Janet Kornblum contributed to this report.