AOL EYES NETSCAPE AS TARGET IN TAKEOVER.

Byline: Ted Bridis Associated Press 

In a stunning alliance that would change the landscape of the nation's technology industry, America Online is in talks to buy Netscape Communications Corp. in a deal that also involves Sun Microsystems Inc., a source close to the situation said Sunday.

It was unclear whether any formal announcement would be made before financial markets opened today, but the source said that under one scenario the $4 billion, all-stock transaction would leave AOL to run Netscape's Netcenter Web site and to distribute Netscape's popular Navigator browser, software that lets people view information on the Internet.

Sun Microsystems, in turn, would benefit in two ways: It would take control of Netscape's business-level ``server'' software, and it would enjoy widespread distribution among AOL's 14 million subscribers of its Java technology for running Internet programs.

The companies have been in negotiations for at least two weeks and all weekend. AOL currently distributes Internet software by rival Microsoft Corp. to its subscribers.

Newsweek magazine, in issues appearing on newsstands today, and The Wall Street Journal's Web site first reported the discussions Sunday.

An AOL-Netscape deal had been seriously considered before, in part to stem competition from Microsoft.

In late 1995, when Netscape's browser was the industry's leader, AOL Chairman Steve Case negotiated with Netscape to distribute the company's browser to his millions of AOL subscribers.

Netscape wanted the deal with AOL, according to a characteristically blunt e-mail sent by co-founder Marc Andreessen ``to use our unique strengths to kick the (expletive) out of the Beast from Redmond that wants to see us both dead,'' a clear reference to Microsoft, headquartered in Redmond, Wash.

But Case, whose general disdain toward Microsoft is well known, wanted a much broader business relationship with Netscape. AOL, for example, pressed Netscape to give up a seat on its board of directors and, when it balked, demanded that AOL be allowed to run Netscape's popular Web site.

Case, with what now appears to be remarkable foresight, warned Netscape Chief Executive Officer James Barksdale in a draft October 1995 e-mail that: ``I'm tempted to just hang back, be patient . . . and wait for a kinder, gentler, pragmatic Netscape to emerge.''

Since then, AOL has added millions of new subscribers while Netscape's share of the browser market has dropped dramatically due to competition from Microsoft.

Barksdale ultimately rejected AOL's proposals, and AOL chose in March 1996 to distribute Microsoft's Internet Explorer browser in a deal that stirred harsh feelings at Netscape.

Details of those past negotiations have surfaced as part of the federal antitrust trial in Washington involving Microsoft.

Microsoft's legal consultant, Charles ``Rick'' Rule, a former senior Justice Department official, said the AOL-Netscape agreement is precisely the type of cooperative venture that the government alleges was improper for Microsoft even to attempt.

Among the government's charges is that Microsoft attempted in June 1995 to divide the market with Netscape for Internet software.

``Unless they're about to go and criminally charge the Netscape and AOL and Sun people, which they aren't, then they can't claim these kinds of negotiations are improper,'' Rule said. ``AOL and Sun are dividing up a business along some sort of market lines based on the strength of each company.''

During the Microsoft trial, among the only times the federal judge closed the courtroom to the public and press was weeks ago when Barksdale reportedly discussed his company's current negotiations with America Online.

The judge also closed the courtroom when a senior America Online executive, David Colburn, discussed his company's negotiations with Netscape.

At the time, speculation focused on the fight over the renewal of America Online's agreement to distribute Microsoft's Internet browser, not Netscape's, to AOL's customers. The agreement can be ended in January - less than two months away - and it was widely understood that Netscape was fighting to win the deal that it had previously lost to its archrival.

Indeed, the Journal reported earlier in the week that Netscape was negotiating with AOL to win back the browser deal it had lost.