It's a deal: AOL buys Netscape

America Online Inc. and Netscape Communications Corp. have consummated one of the most stunning mergers of the Internet Age in a deal valued at $4.2 billion (2.56bn).

The agreement, which calls for each share of Netscape's stock to be exchanged for 0.45 shares of AOL stock, combines two of the biggest online companies -- AOL, with 14 million subscribers, and Netscape, whose Netcenter online portal currently sports 9 million members. The deal is expected to close next spring.

In a separate deal, AOL and Sun Microsystems Inc. announced a three-year marketing and strategic development agreement.

As part of the deal, Sun will help AOL with the distribution and development of electronic-commerce software offerings. The two companies will also use Sun's Java technology to provide next generation AOL services on new Internet devices.

Under the joint effort -- part of AOL's 'AOL Anywhere' strategy -- the two companies plan to continue the development of the next-generation Netscape browser, called Communicator 5.0, and plan to add Version 1.2 of Sun's Java Development Kit technology to the browser. The two companies also will work to embed Sun's scaled-down version of Java, called PersonalJava, into AOL's clients.

The Sun deal, which is separate from the AOL-Netscape merger, calls for AOL to buy $500m (£304m) worth of Sun's hardware and services through the year 2002. Sun agreed to pay AOL $350m (£213m) in licensing, marketing and advertising fees, plus minimum revenue commitments during the next three years.

Netscape's merger with AOL brings to a close the independent life of the Internet pioneer that was one of the brightest software companies to emerge during the past decade. Although it was a company for only four years, Netscape can arguably be considered the creator of the modern Web. It made the high tech world take notice with its amazing IPO, its pace of product development, and the use of the Web and beta products to seed the market for its browser.

AOL's purchase of Netscape should go a long way to removing the stigma it has shouldered of being a poor online substitute for the Web. Its proprietary online service has been ridiculed and discounted -- yet at the same time the company has been able to maintain and even grow its user base, which currently stands at 14 million.

Separately today, Netscape announced that it made $2.7m (1.64m), or 3 cents per share, during the fourth quarter, meeting Wall Street's expectations. The company reported revenues of $162m (£99m) in the quarter, with the bulk -- $114m (£69.5m) -- coming from its products and services division, while revenues from its Netcenter Web site were $48m (£29.27m). That compares to revenues of $152m (92.7m) and a net profit of $10.2m (£6.2m) in the year-ago quarter.

The Netcenter site also made a $39m (£23.8m) operating profit during the quarter, a plus for AOL, which sees the site as a key part of the merger.

Additional reporting by Margaret Kane, ZDNN

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