Digital Island to Acquire SoftAware Networks

Electronic business services company Digital Island Inc.

Monday announced its intention to acquire Net distributed hosting services provider SoftAware Networks Inc. in a transaction currently valued at $US450 million. Should the deal go through, it will provide Digital Island with both additional customers and help the company move further into the media and entertainment markets.

The completion of the transaction, involving 9.37 million shares of Digital Island common stock and $US20 million in cash, is subject to regulatory approval.

The company expects to close the deal in its current financial quarter, due to end Sept. 30.

Once merged, Digital Island hopes to integrate SoftAware's content-delivery nodes and datacenters into its operations in a relatively short period of time, said Tim Wilson, vice president of marketing at Digital Island.

The two companies virtually ran into each other, claims Wilson, due to their similar visions of building a network and providing online content applications and services to customers globally.

"SoftAware was operating on a small scale, winning customers locally. They wanted to go global, and they saw Digital Island," he said, explaining why SoftAware considered merging with Digital Island, which has operations in 25 countries.

Digital Island saw in SoftAware a strong local customer base and infrastructure. "Digital Island also needed someone with development and hosting expertise on the Wintel (Windows and Intel) platform, so we sought SoftAware," Wilson said.

He claims that concentrating on the entertainment industry, a sector where SoftAware is strong, will bolster services in other sectors like finance and hardware, a sector where Digital Island has been traditionally strong.

"Internet applications like auctions and training were developed for the entertainment sector," said Wilson, adding that these applications subsequently made their way into the enterprise sector. "We will try to concentrate on the Los Angeles market, where all the entertainment companies are centered," he added.

SoftAware has built low-latency content delivery networks for more than 550 companies, including Sega.com, Paramount Pictures Corp. and the Fox Kids division of Twentieth Century Fox Films Corp. SoftAware's niche market is in delivering "quick-response hosting" for interactive applications over its own content distribution network, according to a Digital Island statement.

Digital Island hopes SoftAware's network will build additional capacity and enhance its own Web-based content delivery and network services. The companies intend to integrate SoftAware's QuickResponse Global Server Network (GSN) with Digital Island's e-Business Delivery Network.

The combined entity will serve a total of 900 customers worldwide. In addition to boosting electronic-commerce applications and service, Digital Island hopes the integrated network will enhance 3-D multiplayer gaming, contests, tournaments and chat over the Internet, the company said in the statement.

Last month, Digital Island announced the creation of what it claimed was the world's first broadcast streaming media network in conjunction with Compaq Computer Corp., Intel Corp. and Microsoft Corp. The network will support 7.5 million simultaneous media streams. SoftAware's expertise in managing Intel-based hosting services and Windows-based development will add muscle to the network being developed by Digital Island, the company said in the statement.

Wilson re-iterated Digital Island's commitment to a network for operating systems other than Microsoft Windows, adding that Sun Microsystems Inc. has an equity investment in the company. He also said that Digital Island had built network services and applications for Sun's Solaris, Hewlett-Packard Co.'s HP-UX and Red Hat Inc.'s Linux operating systems.

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