Gateway buying Earthlink works for CMGI... (salt?)
EarthLink Shares Rise 20% on Speculation That Gateway Will Buy No. 4 ISP
By Mylene Mangalindan
EarthLink Rises on Speculation Gateway Will Buy It (Update4)
(Updates with closing stock prices.)
Pasadena, California, June 22 (Bloomberg) -- EarthLink
Network Inc. shares rose 20 percent on speculation that the No. 4
Internet service provider will be acquired by Gateway Inc., the
No. 2 direct seller of personal computers.
EarthLink rose 9 5/8 to 57 1/4 in trading of 11.5 million,
more than nine times its three-month daily average. CNBC reported
Gateway may make a $75-a-share cash bid for EarthLink. It didn't
cite sources. Based on shares outstanding, the offer would be
valued at $2.4 billion.
Gateway had said earlier that it's interested in making
acquisitions and investments to cut its dependence on PC hardware
and add services. EarthLink, which had 1.2 million subscribers in
March, competes against online market leaders such as America
Online Inc., which has more than 17 million subscribers.
''Something is cooking,'' said Youssef Squali, an analyst at
Ladenburg Thalman & Co., who rates EarthLink ''buy.'' He said
EarthLink wouldn't confirm or deny an offer when he spoke to its
executives.
Pasadena, California-based EarthLink declined to comment.
Gateway, based in San Diego, had no immediate comment.
In April, Gateway filed to sell as much as $1 billion in
debt, preferred and common stock in a shelf registration, the
proceeds of which it said it may use for acquisitions.
The company took a stake in CMGI Inc., an Internet venture
fund company, in May and would work to sell Gateway products and
services online with some of CMGI's portfolio companies. Gateway
also bought a 20 percent stake in a subsidiary of NECX, a closely
held online seller of computers and other electronic products,
for about $21 million in February.
Gateway has its own Internet service provider called
gateway.net, which uses MCI WorldCom Inc.'s Uunet network.
''It's better to be aligned with someone with multi-
dimensional products than on your own,'' said Paul Foster, a
trader with 1010 Wall Street, a Chicago-based options trading
firm.
Waiting Game
EarthLink was founded in 1994 by Sky Dayton after Dayton
grew frustrated by his long wait to log onto the Internet. He
developed the idea of an Internet service provider that focused
on customer service.
The company sold shares to the public in January 1997 at a
split-adjusted $6.50. Its shares have risen more than fivefold
since its IPO and its market value is $1.8 billion.
Sprint Corp., the third-largest U.S. long-distance telephone
company, owns about 28 percent of EarthLink and has the right to
increase its investment.
If EarthLink's board receives an acquisition bid from a
company other than Sprint, Sprint has 10 days to make a counter
offer. Sprint is under no obligation to boost its stake, which
can't be increased right now.
Sprint declined to comment on the speculation and whether it
would buy more of EarthLink.
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