http://online.wsj.com/article_print/SB119500841715092326.html
The Wall Street Journal
VeriSign to Slim Down, Sharpen Its Focus
Ten of 15 Business Units
May Go in Big Overhaul;
Perils of Diversification
By BOBBY WHITE
November 14, 2007; Page A12
VeriSign Inc., a Silicon Valley company that plays a central role in
Internet transactions, has been criticized on Wall Street for branching off
into new ventures with little payoff. Now, the company is planning to prune.
The Mountain View, Calif., company is set to announce during an analyst
meeting today that it plans to divest itself of as many as 10 of its 15
business units as part of a corporate overhaul.
Depending on its final decisions, VeriSign may emerge with only three major
businesses, including its core Internet name registry and e-commerce
security units. The businesses are part of its Internet-services group,
which in the third quarter accounted for around 60% of its $373.6 million
in revenue.
In addition, the company is making a bet that online-identity protection
will be an expanding business and plans to keep it.
The majority of the business units it plans to shed will come from
VeriSign's underperforming communications-services group, which accounted
for about a third of its third-quarter revenue. Businesses it will look to
divest itself of include billing services for wireless carriers,
communications consulting and other services.
The company also is weighing whether to keep its
telecommunication-messaging and content-delivery units, which also are part
of the communications-services group. Both businesses operate in growing
markets, but executives are worried about costs to remain competitive. The
company plans to evaluate over the next six months whether to keep the
businesses.
"We are, in effect, starting all over again," said Todd Johnson, VeriSign's
vice president of broadband-content services, who is part of a team
overseeing the process. "We want to signal to the market we are taking a
different approach to how we grow the business."
Company executives declined to estimate the financial impact of the
restructuring.
VeriSign executives said the company is in talks with private-equity firms
and wireless-phone companies that could buy some of the units. The company
said it expects to shut down some of the businesses if buyers aren't found.
The divestitures are expected to be completed by the first half of 2009.
VeriSign's moves are the latest example of a Silicon Valley company that
stumbled in trying to integrate businesses purchased in an effort to
expand, like Symantec Corp.'s 2004 acquisition of Veritas Software Corp.
and several other deals. The company, founded in 1995, was formed largely
around the idea of selling what are called digital certificates to help
Internet users prove their identities. It also operates a central directory
of Internet domain names, including all those ending with the suffixes
.com, .net, .cc and .tv.
Stratton Sclavos, VeriSign's longtime chief executive, launched an
acquisition spree, paying about $1.5 billion for 15 tech-related businesses
between 2004 and 2006, estimates First Analysis Securities Corp., an
investment-banking firm in Chicago.
In the second quarter of 2005, after the company reported a drop in
quarterly earnings that reflected a shortfall in its mobile-ring-tone
business, the company's stock fell 16% in a single trading session.
Analysts saw little synergy between some of the units, as well as problems
integrating the companies. "It was really unclear as to just what was this
company's direction," said Shaul Eyal, an analyst with CIBC World Markets.
This May, Mr. Sclavos resigned amid concerns over the company's strategy,
without comment. He was succeeded by VeriSign board member William A. Roper
Jr. In August, founder D. James Bidzos, its first president and CEO and a
former chairman, was given the role of chairman again.
Mr. Roper signaled that the company would conduct a review of operations.
The potential changes contributed to a boost in VeriSign's share price,
which is up 38% since the start of 2007. In the third quarter, the company
reported that profit rose 24% to $19 million, or eight cents a share, but
revenue declined 5.8%.
Mr. Roper said that with so many divergent businesses and teams fighting
for resources, the company had lacked a coherent focus.
"I think it was Clint Eastwood that said it best: 'A man has got to know
his limitations.' I don't think we did," said Mr. Roper. "After all of
this, I think we are headed in the right direction."
--
-----------------
R. A. Hettinga