IP: SAIC's acquisition of NSI - details

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: John Gilmore <gnu () toad com>
Date: Fri, 05 Jul 2002 22:40:05 -0700
To: Joe McGuckin <joe () monk via net>, gnu () new toad com
Cc: nanlev () well com, farber () cis upenn edu
Subject: Re: SAIC's acquisition of NSI - details

A Salon article reader asked:
> ... you mentioned the 'original owner of network solutions'.
> Who was this?

Emmit J. McHenry was the founder of Network Solutions, and its CEO at
the time SAIC acquired it.  He now has various other businesses; you
can find him with Google.  See the Network Solutions "Form S-1/A" of
August 27th, 1997, which you can find at:

http://edgar.sec.gov/Archives/edgar/data/1030341/0000950133-97-003115.txt

Reading these things is an art, but the NSI one is particularly
blatant about stating the ugly facts, relying on the investor not
to read them before throwing their money at NSI.

Appended to this message, for example, is an excerpt from the above
filing, that gives a good idea of how much was paid by SAIC to buy
Network Solutions on March 10, 1995: about $4.5 million in SAIC
stock.  Whose pockets that stock ended up in is not immediately
visible here, though digging in other documents may discover it.
Another part of this document reveals that Mr. McHenry was also paid
about $850,000 cash, in return for a "non-compete agreement" and other
things.

This prospectus for NSI going public, raising about $30 million, says
that $10 million of that will immediately be paid out as a dividend to
SAIC.  This dividend had already been "declared" by the NSI board, but
was to be paid after the public offering.  This dividend took a
profitable company and made it lose money.  Also note that it paid
back SAIC, days after the IPO, more than double the cost of the
initial acquisition of NSI -- and that despite doubling their cash,
SAIC still owned 84.5% of Network Solutions, while the IPO investors
would own 15.5%.  SAIC's stock had 10x the voting power of everyone
else's stock, though, so SAIC would still have 97.9% of the voting
control of the company.

    John Gilmore

http://edgar.sec.gov/Archives/edgar/data/1030341/0000950133-97-003115.txt

...   
     The following table summarizes, on a pro forma basis, as of June
30, 1997, the differences between the existing stockholder and
purchasers of shares in this offering with respect to the number of
shares of Common Stock purchased from the Company, the total
consideration paid and the average consideration per share paid:
    
<TABLE>
<CAPTION>
                                       SHARES PURCHASED        TOTAL
CONSIDERATION
                                     ---------------------
----------------------    AVERAGE PRICE
                                       NUMBER      PERCENT      AMOUNT
PERCENT      PER SHARE
                                     ----------    -------    -----------
-------    -------------
<S>                                  <C>           <C>        <C>
<C>        <C>
     Existing stockholder.........   12,500,000     84.5%     $ 4,480,000
11.5%        $  0.36
     New investors................    2,300,000     15.5%      34,500,000
88.5%        $ 15.00
                                     ----------    -------    -----------
-------       --------
          Total...................   14,800,000    100.0%     $38,980,000
100.0%
                                      =========    =======     ==========
=======
</TABLE>
    
 
   
     The foregoing table is based on the total consideration paid by SAIC
for
its shares based on the price of the shares of SAIC Class A Common Stock (as
determined by the Board of Directors of SAIC in accordance with established
procedures) used to acquire the entire Company, including the
government-based
business which was later transferred to SAIC, and does not give effect to
the
$10,000,000 dividend payable to SAIC.   ...
    
 
                                       25
<PAGE>   28


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