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Netscape on the auction block?

The company is wrapped up in speculation that it may sell all or parts of its business.

Hit with a sagging stock price and a substantial fourth-quarter loss, Netscape Communications (NSCP) is wrapped up in speculation that it may sell all or parts of its business.

Netscape, which until recently has been See special coverage: Netscape's wild ride operating three separate business areas--software for the corporate market, browsers, and its Web site--would garner the highest bidding price if sold in its entirety. Analysts note, however, that the company might be more attractive to computer companies and media interests if it were broken into pieces.

Companies reportedly looking into Netscape include IBM (IBM), America Online (AOL), Sun Microsystems (SUNW), and Oracle (ORCL), according to a report published today in the Wall Street Journal.

Representatives for the aforementioned companies declined to comment on the buyout speculation.

In response to the report, analysts noted that a sale to Novell (NOVL), consulting firm Electronic Data Systems (EDS), or media companies such as Ziff-Davis and Mecklermedia (MECK) also might be feasible.

Talk of an acquisition has driven Netscape shares up 20.6 percent over the past two days,

Prospecting Netscape

Analysts say firms may find a fit with one of Netscape's businesses or consolidate the entire company into their own operations.

Company Interest
AOL Web business
IBM Enterprise software
Mecklermedia Web business
Novell Entire company
Oracle Enterprise software
Sun Enterprise software
Yahoo Web business
Ziff-Davis Web business
as rumors of a Sun Microsystems (SUNW) buyout swept the market. The stock closed today at 21-15/16, up 2-11/16 over yesterday and up substantially from its close at 18-3/16 on Tuesday.

Oracle and Novell were cited by analysts as companies that would find the greatest value in purchasing Netscape wholesale.

"Oracle's business is over 50 percent consulting, which is what Netscape lacks. Also, there would be little product overlap," said James Preissler, an analyst with PaineWebber. "Oracle wouldn't mind having a presence and mind share on people's desktops [with Netscape's browser]."

Steven Frenkel, an analyst with Paragon Capital, said Novell especially would benefit from swallowing Netscape whole, given its vision for the Internet and the corporate enterprise markets.

"Novell has the Internet and server in mind," he added.

Preissler offered this breakdown of Netscape's assets and potential suitors: Big Blue, Sun Microsystems, and EDS likely would be interested mainly in Netscape's enterprise business, if they were serious candidates.

The gem of Netscape's enterprise business is its high-quality products and technology, according to Preissler. Conversely, its downfall is a lack of a large consulting and support arm to service customers that buy its software.

IBM and EDS have consulting businesses that would benefit Netscape, which could then turn around and use those businesses to leverage its server business with corporate customers. IBM, however, has a lot of product overlap with Netscape, while EDS likely would want to remain neutral in its software recommendations by not owning any technology interests, Preissler said.

Netscape's browser business brings a presence to the desktop, but browsers over the last year have turned into a commodity product that tends to run up costs. Browsers bring with them a constant need for research and development resources, as companies strive to spin out the most feature-laden versions possible of their products.

Netscape's revenue pie chart

Oracle and IBM would be the candidates most likely to be interested in Netscape's browser business, Preissler noted.

As for Netscape's Web site, the greatest value comes from brand recognition. The downside, Preissler added, lies in questions about how many of the company's 2.5 million registered users tap into the site every day.

AOL, Yahoo, and media companies, he said, have particular interests in Netscape's Web presence. "Yahoo and AOL have spent a lot of time building up their brand and there would be a question of which one would supersede [Netscape's brand]. Also, Netscape has partnerships with a lot of search engines, and that may cause a conflict and lost revenue."

Media companies such as Ziff-Davis and Mecklermedia potentially could benefit from placing their content on Netscape's Web site and likely would not face conflict issues as a result, Preissler added.

Analysts, however, were unanimous in their assessment that the best possible deal for Netscape, assuming one is in the works, would be for the company to sell itself off as a single entity.

"The browser and enterprise software need to be kept together. They are complementary and work together technologically," Preissler said. "Although the Web site can be broken out, it benefits from the browser driving traffic to the site."