NTT-Verio Merger Target of U.S. Investigation

TOKYO (07/04/2000) - NTT Communications, the long distance and International unit of Japan's telecommunications giant Nippon Telegraph and Telephone Corp.

(NTT) , confirmed July 3 that the U.S. government is investigating its proposed takeover of Verio Inc. (VRIO) , the U.S. Internet hosting company.

The probe into the $.5.5 billion all cash deal is being pursued by the Committee on Foreign Investment in the United States (CFIUS), an inter-agency panel chaired by the Secretary of Treasury. The investigation is being pursued under the terms of the Exon-Florio Amendment to the Defense Production Act of 1950, legislation normally reserved for matters of national security.

The Exon-Florio Amendment allows for reviews of foreign investment in U.S. companies and, should the President find the investment unfit, the ability to block it. The investigation can take up to 45 days, with an additional 15 days should the President decide to take action.

The exact reason behind the investigation is unclear.

"We don't even know why exactly the agency has decided to go ahead," said Megumi Inaji, NTT Communications spokesperson. Though one explanation may be NTT Communications' earlier rebuttal of a request by the Department of Justice and FBI that the company promise to cooperate with them for what Inaji described as "issues of public safety and law enforcement."

"We've made our position clear to them that we would respect the U.S. laws and obey the common Internet business practices in the United States," Inaji said.

"But in this extremely competitive Internet industry, we've wondered if NTT-Verio should be the only one to bear such responsibility."

Inaji declined to reveal in what areas of public safety issues that the U.S. agencies wanted the company support.

The investigation, which was announced just as the U.S. and Japan prepare to negotiate how to reduce NTT's domestic telecommunication connection charges, could be a bargaining tool for the U.S. government, although Japanese officials and NTT Communications deny any such link.

In early May, the two companies have agreed on a tender offer for all outstanding shares of Verio at $60 per share. NTT Communications and Verio have extended their tender offer for purchasing the shares of Verio, which was due to expire on June 30, until July 14, but if the investigation drags on, they may have to complete the tender offer before CFIUS delivers its recommendation.

On Friday, NTT Communications announced that some 43.13 million shares of Verio common stock, approximately 3.18 million shares of Verio preferred stock and approximately 1.21 million warrants to purchase shares of Verio common stock had been tendered. That is a reduction of the number of shares reported tendered on June 15.

Shares of NTT were relatively unaffected by news of the Treasury department probe, closing at 1,490,000 yen on the Tokyo Stock Exchange Monday, up 5.67 percent from last week's closing price.

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