VeriSign CEO Resigns: Is the Company For Sale?

Long-time VeriSign (VRSN) CEO Stratton Sclavos has stepped down after a 12 year run. Sclavos was the CEO for the VeriSign IPO back in 1996. By any measure, 12 years as CEO in Silicon Valley is equivalent to a life-time. The reasons for Sclavos' departure were not given by the company, but sources tell me it was a real disagreement about the direction of the company and the internet in general.

VeriSign is the absolute utility of the internet. All .com and .net addresses are kept in the master registry by VeriSign. All communications and web searches ending in .com and .net must go through the VeriSign data center. For every domain name, .com and .net, VeriSign collects $6 per year. The ICANN division of the US Department of Commerce has granted VeriSign the exclusive right to act as registry through 2012 with preemptive rights of renewal. ICANN also granted VeriSign the rights to raise the pricing up to 7% per year. Although 7% is only 42 cents the first year, VeriSign controls nearly 66 million domain addresses.

With its annual renewable domain empire and its web site digital certificates that enable secure e-commerce that also renew annually at over $600 per server, the cash generating power of VeriSign is showing itself to be quite formidable. The cash flow from operations could top $500 million this year and rise from there. VeriSign, with a new CEO chosen from the senior ranks of its existing management team, may be getting ready to be acquired. VeriSign has divested itself of the expense-laden ring-tone business having sold off a majority stake to NewsCorp (NWS) late last year.

VeriSign has the in-house capability of being the back-bone for all RFID operations in the future. Rafio-frequency idetification tags [RFID] is the wave of the near future for giant retailers like Wal-mart. The RFID tags will eventually replace the current system of bar-coding products. The applications for RFID are limitless. VeriSign has the infrastructure to appoint an IP address to every tag and serve as the industry's defacto standard. The cash flow from this business has yet to be modeled, but the gist is it will be quite high.

Stratton Sclavos, controversial during his tenure, was a visionary in the internet's early days. The struggle he had with the board of directors had been rumored for awhile. VeriSign will have to re-state its numbers from 2002 through the first quarter of 2006 due to back-dating options. It's still a mess and may have served as a catalyst to dismiss Mr. Sclavos. Nonetheless, the company is printing high cash yields.

With the company approaching $1.8 billion in revenues for 2008, the private equity world may be sharpening its knives to acquire VeriSign. With a market capitalization of $6.5 billion, the acquisition would not be considered enormous in today's environment.

VRSN 1-yr chart

Disclosure: none