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NTT-Verio union at risk
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July 25, 2000: 12:42 p.m. ET
Company has tough choices for $5.5B Verio deal, awaits gov't inquiry results
By Staff Writer Kim Khan
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NEW YORK (CNNfn) - While Nippon Telegraph & Telephone's proposed acquisition of Internet service provider Verio Inc. steadily marches on, the specter of a government investigation still hovers.
Unless government agencies complete their investigation of the proposed $5.5 billion cash deal by Friday, NTT must decide whether to extend its tender offer again or proceed before the inquiry is completed.
If NTT completes the deal, it could be costly and embarrassing if the government then scuttles the alliance. If the company waits, it risks losing key Verio workers who want a more certain future, as Sprint (FON: Research, Estimates) did during its prolonged merger process with WorldCom (WCOM: Research, Estimates).
The Treasury Department's Committee on Foreign Investment in the United States is investigating the deal, with the help of the FBI, National Security Council (NSC), and the Departments of State, Defense and Commerce, according to an NSC source.
Concerns have surfaced that NTT's ownership of Verio, which includes an Internet backbone, will inhibit the U.S. government's ability to maintain surveillance over the company's telecommunications network and infringe on the FBI's ability to perform wiretaps.
A Treasury spokesman gave no information about the progress of the investigation.
NTT is cooperating with the CFIUS and appears confident the deal will be approved. On July 18 the company issues its tender for $1 billion of Verio's corporate debt. But closing the deal with the investigation still up in the air could spook investors and Verio employees.
A source familiar with the situation told CNNfn.com a number of undecided Verio investors are having second thoughts about tendering their shares.
 According to an NTT spokesman, both companies remain committed to the deal, and as of July 13 the company had received 62 percent of the Verio shares it does not already own. This is more than enough to complete the takeover, but below NTT's desired target.
"They want all the shares, but they are struggling to get the 30-to-40 percent more they would need," said Lori Alexander, analyst with Preferred Capital Markets. "Is that a deal breaker? I don't think so."
Alexander said NTT is just waiting for a green flag from the government, which by law must come by Aug. 29. But the longer it waits the more it risks a so-called "brain drain."
The day after news of the investigation broke, one analyst who follows NTT told Reuters News Service said the company should end the deal immediately or they would be left with just a money-losing subsidiary.
According to Alexander the government investigation is just "saber rattling," but that rattling could still unsteady a few nerves. 
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