YHOO might buy XCIT@home - business article: -
NEWS FLASH
Aug. 2, 1999
Excite@Home May Be Back on the Market -- and Yahoo! Is Looking
The two companies have been talking about a deal that could top $17 billion
It seemed to make a lot of sense at the time. Back in January when @Home Corp. announced that it
would buy Excite Inc. for $6.7 billion in stock, investors applauded. Excite shares soared 63% the
day the deal was made public, while @Home's stock rose 13%. Wall Street seemed to be
infatuated with the idea of combining @Home's broadband Net access business with Excite's
combination of news, sports scores, stock quotes, and more. Tom Jermoluk, @Home's chief
executive, declared that together the two companies would become "the new media network for the
21st century."
Or maybe not. Little more than two months after the merger was officially completed, Excite@Home
may be back on the market, Business Week Online has learned. Only this time, uberportal Yahoo!
Inc. could be the acquirer. According to sources close to the companies, Excite@Home and Yahoo
have held talks over the last six weeks about a possible deal in which Yahoo! would buy
Excite@Home for some amount greater than its current market value of $17 billion. Yahoo! would
not only gain devotees of the No. 6 portal but it would also get a much-needed broadband play.
Sources add, however, that Yahoo! doesn't want to operate an infrastructure company like
@Home, which provides high-speed Internet access over cable lines. And AT&T, the controlling
shareholder in Excite@Home, wants to retain influence over the @Home business. So exactly what
would happen with @Home is still up in the air. One scenario, according to those familiar with the
discussions, is for Yahoo! to absorb Excite and spin out @Home into an independent company in
which Yahoo! and AT&T would have sizable stakes. That would provide AT&T with the control it
wants, and it would give Yahoo! a prime position as the Net goes broadband. Another scenario,
according to one source, would see AT&T take the @Home business and combine it with its
WorldNet Internet access business.
Sources close to all three companies caution that the recent talks are preliminary and that much work
is yet to be done before a deal could come together. But it is remarkable that the talks are taking
place at all. It was May 28 when @Home and Excite were celebrating the formal completion of their
new partnership.
DIFFERENT VISIONS. Why would they suddenly consider reversing course? One source chalks it up to
a behind-the-scenes dispute over strategy that pits Excite@Home's Jermoluk and high-powered
venture capitalist and Excite@Home board member L. John Doerr against AT&T CEO C. Michael
Armstrong and top lieutenant Leo Hindery Jr.
Jermoluk and Doerr want Excite@Home to be like an AOL on steroids, offering everything from
high-quality video and sound to sophisticated interactive programming and E-commerce. The idea
would be to keep subscribers on their site as much as possible, thereby competing more aggressively
with AOL and grabbing more advertising dollars.
By contrast, AT&T's top brass want to offer subscribers content over the @Home network from as
many companies as possible, including Yahoo! and Microsoft. They believe that's the fastest way to
ramp up the number of paying subscribers to @Home and help pay off the billions of dollars they're
investing in their cable infrastructure. But having to play second fiddle to Excite's offerings rather than
enjoying equal billing could give other content providers reason to snub AT&T. "Excite@Home
wants to be the other AOL -- a largely closed online service," says one person involved in the
debate. "The problem with that is that hurts the value of the communications network."
LACK OF CONTROL. But AT&T may have a tough time getting its way. Though it has 58% of the
voting rights in Excite@Home, it doesn't have complete control. That's because of a byzantine
governing structure set up by cable pioneer John Malone, who established @Home in 1995. To
take significant actions such as selling Excite@Home, AT&T needs the support of other board
members, which include Cox Communications and Comcast Communications.
One source close to AT&T says that Doerr, a board member and top partner at the venture capital
firm Kleiner Perkins Caufield & Byers, opposes a deal with Yahoo! because he believes that
Excite@Home is worth more with its current business plan than if it were to go with Yahoo!. This
source said Doerr and other board members could be persuaded if Yahoo! offered a sweet enough
price. Doerr was unavailable for comment.
While AT&T would not comment on any negotiations, its view of what Excite@Home should
become clearly contrasts with any plans of empire-building at Excite@Home. "We're not interested
in being a content company," says John Petrillo, AT&T's head of corporate strategy. "We don't want
to buy a movie studio." Petrillo says that AT&T, with executives from Excite@Home, have talked to
a wide variety of Internet companies about wrapping their content in with the @Home access
service. Those named included Microsoft's MSN, Disney's Go, and NBC's snap.com. "We're better
off if we offer the customer as much choice as possible."
Publicly, Armstrong and Jermoluk have supported their partnership. On July 27 when
Excite@Home held a meeting for Wall Street analysts at its Redwood City, Calif., campus,
Armstrong flew out from headquarters in Basking Ridge, N. J. He explained AT&T's corporate
strategy and emphasized how important the rollout of broadband cable was for the long distance
giant, according to participants. "We were impressed by his tone," says Michael Graham, the
Internet analyst at BancBoston Robertson Stephens who attended the meeting.
Occasionally, though, disagreements have surfaced. For example, Hindery, a former TCI executive
who now oversees AT&T's cable operations, has said that he thinks the Excite acquisition
contradicts AT&T's stance of staying out of the content business. Yet Jermoluk remains steadfast,
noting that Armstrong supports the acquisition.
If Excite@Home is sold, it would help AT&T in its battle with AOL and other companies over
"open access." These rivals are arguing that AT&T should have to share the use of its cable network
to supply broadband connections to the Net. A handful of municipalities, including Portland, have
ruled that AT&T must open up its network to competitors, while Federal Communications
Commission Chairman William E. Kennard has publicly supported AT&T.
HELPING AT&T. If AT&T opens up @Home to a variety of content providers beyond Excite, AOL
will have less leverage to argue that AT&T is blocking out competitors. A source close to AT&T
says that the open access firestorm is not the primary reason for the talks with Yahoo!, although an
Excite@Home deal would help AT&T's regulatory position.
As for Excite@Home, its relationship with AT&T has had its ups and downs. One source close to
Excite@Home describes the alliance as "frustrating." Nonetheless, this source says Excite@Home
could be well-served by sticking with AT&T if it can get Armstrong's team to focus on the
company's mission. If not, then the source says a deal with Yahoo! might be more attractive. "If
AT&T is willing to make a full commitment and see this to the end, then I think it's better to stay as
it's set up," the source says. "But if AT&T and the cable guys can't decide what they want, then
Excite@Home should go and be with somebody who will focus on it."
For Yahoo!, the acquisition could be manna from heaven. It had considered buying Excite late last
year before @Home stepped in with a winning offer. But a deal now would not only greatly extend
the reach of the Web's dominant portal. It would also supply Yahoo! with something much more
valuable: The broadband strategy it has been lacking. Yahoo! needs a cable distribution channel to
carry the rich media it is currently folding into its vast network. Yahoo! declined to comment. Since
January, Yahoo! has been on a buying spree in an effort to expand its services and offerings. It
bought Internet community leader Geocities Inc. on Jan. 28 for about $5 billion in stock. On April 1,
it plunked down another $5.6 billion in stock for Broadcast.com Inc., the largest provider on the
Web of video and audio programming. A deal with Excite@Home clearly would allow Yahoo! to
make more of what it already has. Now it just has to figure out a way to get it. |
