Fool.com: Verily, Verily, VeriSign Reaches New Heights (News) December 20, 1999

Verily, Verily, VeriSign Reaches New Heights

By Richard McCaffery (TMF Gibson)
December 20, 1999

Internet security software company VeriSign (Nasdaq: VRSN) jumped more than $15 in trading early today after announcing plans to spend $1.3 billion in stock to acquire a pair of e-commerce companies.

That means its market value jumped $1.5 billion at one point on word it would buy the two privately held companies, which have sales of about $1 million each, according to Bloomberg.

So much for the standard drop in share price buyers often experience in the wake of an acquisition.

VeriSign is paying $753 million in stock for Signio, which makes a software platform that helps turn a basic website into a store front where money can change hands. It's paying $575 million in stock to purchase Thawte Consulting of South Africa, which provides digital certification products and services.

VeriSign makes software that helps secure transactions on the Web. The two purchases are expected to boost VeriSign's significant lead in its space.

Generally when a company's stock drops after a pricey acquisition there's one of three factors at play: The acquirer's buying a lousy company; it's paying too much, or investors aren't confident the acquirer will add any value.

Obviously, investors don't have any such fears regarding VeriSign's recent deals. First of all, VeriSign has jumped out to a lead in the business-to-business security market, an arena investors love.

Many Internet analysts think opportunities in the business-to-business e-commerce space easily outstrip those in the retail space. Deutsche Banc Alex. Brown, for example, expects the business to business e-commerce market will hit $1.5 trillion in 2003, compared to $105 billion for the entire consumer retailing market. That's one reason VeriSign has split its stock twice this year and is up over 1,000%.

Also behind shareholder's love affair with VeriSign is the fact it's an Internet infrastructure play. The idea here is to invest in companies that power the Internet rather than trying to bet on a bevy of players out to grab the consumer's eye.

VeriSign offers services to the top 40 Internet e-commerce websites, the company said in its statement. Customers include Bank of America (NYSE: BAC), Hewlett-Packard (NYSE: HWP), and AT&T (NYSE: T).

Its two acquisitions stand out in the customer and partnership departments as well. Signio's services are integrated with software made by Commerce One (Nasdaq: CMRC), Intuit (Nasdaq: INTU), Microsoft (Nasdaq: MSFT), and others. Thawte has operations in more than 22 countries, and VeriSign said it's the number two provider of website digital certificates.

Unless a competitor stands up fast, VeriSign will be mighty tough to knock from its perch.

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