Monday, September 18, 2006

Calls of Note Part 4

Merrill Lynch out positive on VeriSign (NASDAQ:VRSN), saying that based on discussions with sources familiar with the issues, they believe VeriSign's .NET and .COM registry agreement is likely to be ratified by the Department of Commerce following Senate hearings on ICANN this week. As per DOC request, the Department of Justice will have final word on the agreements but there is little indication so far of any substantive objections that would derail final approval.

The agreement offers significant long-term financial and strategic benefits to VeriSign, including increases in Domain Name pricing, presumptive renewal following 2012 expiration, policies for approving new registry services and arbitration for any disputes. By firm's estimate, compounded price increases could potentially generate up to $300mn in incremental annual revenues by

ICANN has proposed renewal contracts for .BIZ, .INFO and .ORG (not managed by VeriSign) that allow for similar renewal provisions and eliminate all restrictions on pricing increases. By contrast, VeriSign's stipulated price increases (7% for .COM and 10% for .ORG) are more restrictive, improving likelihood of approval.

DOC approval of the registry agreement could be a meaningful positive to allay any lingering concerns of linkage between VeriSign's ongoing inquiry into past option practices and the contract with ICANN. Firm thinks this could further improve sentiment lifted by the pending divestiture of 51% of Jamba. While they have not yet adjusted our model for the Jamba sale, the impact of .COM and .NET increases is not yet in their forecasts and could generate healthy long-term upside.

Notablecalls: Expect to see additional interest in VRSN in the coming days. The co is step-by-step coming out from the analyst/street doghouse it has been in for over a year now.

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