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Partners:
  America Online Negotiating to Buy Netscape

By Ted Bridis
Associated Press Writer
Monday, November 23, 1998; 10:31 a.m. EST

WASHINGTON America Online Inc. said today it is negotiating to buy Netscape Communications Corp. in a deal that would bring together the world's largest computer Internet provider and the pioneer company whose software first popularized the Web.

But the deal, which was negotiated all weekend, isn't complete. A person close to the negotiations told The Associated Press it was unlikely the deal, estimated at $4 billion, would be finalized today.

AOL cautioned in a statement that "there can be no assurance that an agreement will be reached or a transaction consummated."

Prices for both Netscape and AOL were down slightly in early trading today. Netscape opened at $44 but dipped to $42, and AOL opened at $89.75 but was down to $87.25. Sun opened at $69.50 and climbed to $71.63.

Under one scenario, according to the source, AOL would run Netscape's "Netcenter" Web site, which receives roughly 20 million visitors monthly, and distribute Netscape's popular browser, the software that lets people view information on the Internet.

Sun Microsystems Inc., the third company involved in the negotiations, would benefit in two ways: It would take control of Netscape's business-level "server" software, and it would enjoy widespread distribution among AOL's 14 million subscribers of its Java technology for running Internet programs.

AOL said its talks with Sun involved "a possible development and marketing agreement for e-commerce and new Internet devices, which would involve Netscape products."

The three companies have been negotiating for at least two weeks. If the deal is completed, it would create an alliance that dramatically would change the landscape of the nation's technology industry.

It also could spell trouble several ways for Microsoft Corp., the industry giant whose Internet software competes directly with Netscape's.

Microsoft with its own, far less-successful online service and its own business-level software also competes against AOL and Sun Microsystems, which makes powerful workstation computers used by graphic artists and engineers.

AOL, for example, now distributes Internet software by Microsoft to its subscribers. But a shift in allegiance to Netscape could dramatically restore Netscape's share of the browser market to its highest levels since Microsoft launched raids so aggressive that the federal government is suing it for alleged antitrust violations.

"It would mean the leading browser company and the dominant Internet service company and a leading computer company would be combining forces," said Bill Neukom, Microsoft's senior vice president for law and corporate affairs.

"The proposed deal demonstrates a simple truth, that there is vigorous competition in the marketplace and that Microsoft faces resourceful and capable competitors," Neukom said today before Microsoft's antitrust trial resumed.

An AOL-Netscape deal had been seriously considered before, in part to meet competition from Microsoft.

In late 1995, when Netscape's browser was the industry's leader, AOL Chairman Steve Case negotiated with Netscape to distribute the company's browser to millions of AOL subscribers.

Netscape wanted the deal with AOL "to use our unique strengths to kick the (expletive) out of the Beast from Redmond that wants to see us both dead," Netscape cofounder Marc Andreessen said in an e-mail message. Microsoft is based in Redmond, Wash.

But Case, who has shown disdain for Microsoft, wanted a much broader business relationship with Netscape at the time. AOL, for example, pressed Netscape to give up a seat on its board of directors and, when it balked, demanded that AOL be allowed to run Netscape's popular Web site.

Case warned Netscape Chief Executive Officer James Barksdale in a draft October 1995 e-mail: "I'm tempted to just hang back, be patient ... and wait for a kinder, gentler, pragmatic Netscape to emerge."

Since then, AOL has added millions of new subscribers while Netscape's share of the browser market has dropped dramatically due to competition from Microsoft.

Barksdale ultimately rejected AOL's proposals, and AOL chose in March 1996 to distribute Microsoft's Internet browser in a deal that stirred hard feelings at Netscape.

Details of those past negotiations have surfaced as part of the federal antitrust trial in Washington involving Microsoft.

© Copyright 1998 The Associated Press

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