Internap to Buy VitalStream for $217 Million

Internap Network Services will acquire VitalStream Holdings (VSTH) for $217 million in an all-stock deal that boosts its position in the fast-growing - and fast-changing - world of Internet video and streaming media.

Internap will issue about 11.9 million common shares, representing about 26 percent of the combined company's shares, to VitalStream shareholders. The acquisition is expected to close by the first quarter of 2007. The deal follows VitalStream's announcement earlier this week that it was about to lose its largest customer, MySpace, which accounts for 31% of its business.

"The marketplace for content delivery services is rapidly expanding as the needs for companies to integrate streaming audio and video into their Web presence become more critical and more complex," said James P. DeBlasio, chief executive officer of Internap. "The combination of VitalStream's content delivery services and our high performance intelligent route control solutions positions us to create the market leading platform for distribution of rich media content and advertising. Together, we expect to become a formidable force in the rapidly growing streaming media and content delivery market."

"The new Internap will offer turnkey digital media broadcasting solutions for web users of all sizes," said Jack Waterman, chairman and chief executive officer of VitalStream. "By uniting our two organizations, customers will have a complete solution to realize the full on-line potential of their digital assets."

Shares of Internap fell over 7 percent to $15.81, while VitalStream rose about 23 percent to $7.84 in early trading on the NASDAQ market.

The combined company will have 450 employees and more than 3000 enterprise customers. "The combination of VitalStream's content delivery services, content management tools and particular expertise in Adobe (formerly Macromedia) Flash technology, with Internap's high performance route management network, will enable the new organization to easily address the needs of enterprises seeking to deliver large format media files in a streamed environment<" the companies said in their announcement. "The combined offering will be the strongest and most comprehensive available in the industry today."