Netscape up on buyout rumors

Netscape Communications' (NSCP) stock jumped by as much as 13.4 percent in today's trading, as rumors circulated of a buyout by Sun Microsystems (SUNW).

Netscape shares rose as high as 20-5/8 before closing the day at 19-1/4, an increase of nearly 6 percent from yesterday. Volume was heavy, with 9.8 million shares trading hands.

One analyst said a merger with Sun or Oracle (ORCL) would make sense, but noted that it is unlikely that any such purchase would come at a premium. Sun's stock was virtually unchanged at 49.

"I told our investors, 'Don't be surprised that, if a deal is made, it's at the existing stock price,'" said Kris Tuttle, an analyst with Soundview Financial Group. "I don't believe [an acquisition] would be done at a substantial premium to their stock."

Tuttle said that Sun is trading in the low price-to-earnings multiple range and would have a harder time buying Netscape if the transaction involved a stock swap. He added that he has doubts about whether Oracle can even afford to overpay for Netscape, and noted that he would be looking to sell the stock at $20 per share, rather than buy.

"We've been saying since Netscape announced their stunning [earnings] failure in the December period that they should be merging with a larger, established player in the enterprise market," Tuttle said. "Looking at the usual suspects, I think Oracle would be the No. 1 company in terms of fit, followed by Sun."

He noted, however, that, as of yet, his industry contacts have received "zero" indication such a deal is going down.

"What's happening today that all of a sudden people are saying this is a good combination," said David Readerman, an analyst with NationsBanc Montgomery Securities, noting that the buyout rumor has circulated before.

A spokeswoman for Netscape declined to comment on the speculation, or on the bounce in the company's stock price.