WASHINGTON, D.C. (08/10/2000) - Shares in Verio Inc. rallied on the Nasdaq on Thursday, after a U.S. government committee postponed a meeting.
The conference of high-level government officials had planned to look at the company's proposed acquisition by Japan's Nippon Telegraph and Telephone Corp.
(NTT) . Now Verio is said to be in discussions with the FBI.
Analysts working with institutional investors that have a stake in Verio said the Japanese company was moving closer to appeasing FBI concerns about a foreign carrier becoming responsible for the Colorado-based ISP. The concerns prompted the high-level Committee on Foreign Investment in the United States to conduct a two-month review.
The NTT-Verio deal marks the first time a law, called the Exon-Florio provision and usually relegated to aerospace or weapons deals, has been invoked to look at an Internet acquisition. The committee, chaired by U.S. Treasury Secretary Lawrence Summers and including such officials as Attorney General Janet Reno, must make a recommendation to President Clinton by Monday as to whether he should approve the deal. Under the statute, Clinton would have 15 days to decide.
But news that NTT -- which is controlled by the Japanese government -- may have moved to address the national security concerns of U.S. law enforcement officials, sent Verio stock surging $3.69 on Thursday to close at $57.19.
Verio's stock has been volatile since NTT first tried to buy the 90 percent of the company it does not already own.
"There's clearly been movement and that movement has been positive," says Brett Lambert, VP of DFI International, a firm in Washington, D.C., that specializes in high-tech mergers and acquisitions but is not directly involved with the NTT-Verio deal. "The fact that there was a meeting today between NTT and the FBI means they've reached a first down. But whether that's first-and-goal or first and the 50-yard line is the question. The bottom line is all parties involved want to see this happen."
While government officials are barred under the law from discussing the review process, there have been reports that the FBI is concerned that the deal could give the company access to U.S. wiretapping information. That has pit the law enforcement community against other government agencies that oversee trade. The latter group argues that failing to approve the deal could result in trade repercussions.
Analysts expect that the proposed $5.5 billion acquisition of Verio, which was first announced in late June, will be extended once again, unless it is recommended for approval by Monday, when the latest offer expires. The Japanese long-distance carrier has tendered offers four separate times, bidding $60 per share for the latest offer.
Analysts said that one of the sticking points is the FBI's insistence that NTT agree to written commitments for some type of filter or organizational panel within the new entity that could deal with U.S. government agencies without the knowledge of the parent company, and in particular the Japanese government.
These types of concerns have been addressed in cases involving defense companies acquired by foreign concerns by instituting a U.S.-based board of directors, according to sources. Such companies need U.S. citizens on the board in order to win security clearance, which should not be a factor in this telecommunications deal.
The two companies issued a joint statement last Thursday pledging to continue to work with the committee. A Verio spokesman referred reporters to that statement this Thursday.