Netscape's share price soared last week amid growing speculation that Sun would buy the internet browser company.
Share price shot up almost 30 per cent to $25.56, and more than 30 million shares - or one-third of the company - changed hands during the day. At the current stock price, Netscape is valued at about $2.5 billion.
Jim Balderston, an analyst at Zona Research in Redwood City, California, said: 'We're scratching our heads and saying: "What is Sun getting out of this?" The cachet Netscape brings to the table is dwindling every day.
If all it wants to do is keep the 'anyone but Microsoft' alliance together, this is a very high price to pay.'
He added: 'It's good for Netscape that these rumours are circulating at this time. Its quarterly earnings are due soon. If they're bad, takeover rumours will hold the stock up.'
In its quarter ended December 1997, Netscape saw falling sales for the first time in its history, damaging its already tarnished image. Earlier this year, Netscape decided to give away its Web browser for free and publish the source code. The company also announced about 400 lay-offs.
In February, Netscape changed its fiscal year to align it with seasonal buying patterns. It will now end on 31 October instead of 31 December. As a consequence of the change, the company will not publish earnings this month, but will instead announce results for January together with those for the February to April quarter.
A Netscape representative said the company has a policy not to comment on market rumours. Sun was not available.
Rival search engine suppliers Yahoo, Infoseek, Excite and Lycos also experienced a rise in shares.
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