Clinton OKs $5.5B Internet Deal

U.S. President Bill Clinton will not bar Nippon Telegraph and Telephone Corp. (NTT) from purchasing Internet service provider (ISP) Verio, Inc. (Nasdaq: VRIO), the administration announced Wednesday.

According to a White House statement, “any national security issues that may have been presented by this transaction have been resolved.”

Access to Wiretaps

Clinton’s approval of the $60-per-share (US$) tender offer by NTT Communications Corp, a wholly owned unit of NTT, indicates that the president believes there is no espionage threat posed by the deal. Some government officials reportedly were worried that the deal might expose the U.S. to foreign counterintelligence by giving Japan’s state-controlled NTT access to U.S. wiretapping activities.

NTT first extended its offer in May, as part of a plan to better compete with AT&T and WorldCom, Inc. in operating Internet sites for U.S. businesses. Verio operates about 400,000 such sites.

Soon after, NTT was told it was subject to a Treasury Department-led investigation, which caused many financial observers to believe the deal was doomed.

Solid Recommendation

Clinton’s decision was based upon a unanimous recommendation by the Committee on Foreign Investment in the United States (CFIUS), an 11-agency group chaired by Treasury Secretary Lawrence Summers. The CFIUS investigated the transactions contemplated under the proposed agreement.

Every member of the CFIUS voted to recommend that Clinton take no action to suspend or prohibit the $5.5 billion transaction. On Wednesday, NTT Communications and Verio were informed of the recommendation.

The tender offer had been scheduled to expire on August 21st, but the deadline was extended to August 30th at midnight, pending the White House decision.

Drawing Lines

While the terms of the approval were not disclosed, NTT previously agreed to create a separate division of Verio — staffed and managed only by U.S. citizens — to handle any law-enforcement requests for electronic surveillance.

NTT has also agreed to other terms to address concerns that the Japanese government would have access to classified information through Verio.

Precedent for Foreign Deals

The Verio/NTT investigation was the first probe involving the foreign acquisition of a U.S.-based ISP conducted under a 1988 law authorizing the President of the United States to investigate, and if necessary, suspend or prohibit a proposed foreign acquisition of a U.S. company that is engaged in interstate commerce.

In a statement, the White House noted that to suspend or prohibit such a transaction, the President must find “there is credible evidence that leads the President to believe that the foreign interest exercising control might take action that threatens national security.”

In addition, the President must find that current laws “do not in the President’s judgment provide adequate and appropriate authority for the President to protect the national security in the present matter.”

Clinton’s decision may present obstacles for Deutsche Telekom, which announced the purchase of U.S. mobile operator VoiceStream Wireless in July. Many U.S. legislators have expressed concern about the German government’s 58.2 percent ownership of the U.S. company.