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Internap Acquires VitalStream

Internap Network Services Co. announced Thursday that it has reached an agreement to acquire VitalStream Holdings, one of the world’s largest content delivery networks, in a stock play that puts the purchase price at approximately $217 million.

The network services provider will issue approximately 11.9 million shares in respect to outstanding VitalStream common shares at an exchange ratio of 0.5132 Internap shares for every VitalStream share. This will make up roughly 26% of the combined company’s shares, according to a press release.

"I prefer to look at this as a mutually beneficial merger rather than an acquistion," said VitalStream EVP of global sales and marketing Michel J. Maeso at the Streaming Media Europe show in London. "Internap gets not just VitalStream’s assets, but our talent, customers, and revenue flow. VitalStream gets Internap's vast resources, and they're a real complement to what we do."

Whatever you call it, the deal should silence some of VitalStream’s critics, who’ve been concerned that the CDN has gotten too big too quickly. "We’d become so successful as a company that we had to work very hard to keep pace," said Maeso. VitalStream’s preliminary 3Q 2006 results, announced at the end of September, projected revenue of between $6.9 million and $7.2 million, up 79%-87% year-over-year and 11%-16% over the second quarter.

VitalStream already had expansion plans in the works, Maeso said, and the company had filed an SEC registration statement in early September for a common stock offering. "We just get where we wanted to go faster by joining with a company that is global, stable, well-respected, and cash-positive," he added.

Maeso himself appears to have been a key factor behind the deal. He was formerly vice president of sales at Speedera, where he worked with Internap as a channel partner. Akamai, VitalStream’s biggest competitor, purchased Speedera in early 2005.

For now, VitalStream’s brand will remain the same, though Maeso said that may change over coming months. "It’s going to take some time to integrate the two companies," he said. "We’re definitely not going to be an island in the distance, but we will still have our autonomy."

Earlier this year, VitalStream acquired EonStreams and created VitalStream Advertising Services, the first ad insertion offering from a major CDN. The deal with Internap just furthers VitalStream’s positon as a "one-stop shop" for delivery, Flash hosting, and web hosting. "This is what customers want," Maeso said. "Large organizations want to consolidate as many functions as possible."

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