unday October 3, 4:40 pm Eastern Time
Takeover or break-up at ExciteAtHome -- a debate
By Andrea Orr
PALO ALTO, Calif., Oct 3 (Reuters) - Recent talk of a takeover or break-up of
ExciteAtHome Corp. (NasdaqNM:ATHM - news), has left plenty of people arguing the
merits of splitting the Internet company into two distinct businesses.
It is an abrupt turnaround from just earlier this year, when everyone seemed to think it wise
to combine the two into one -- no matter the cost.
ExciteAtHome Corp., after all, started this year as two separate and high-profile Internet companies, both enjoying leading
market positions and brisk growth, before they decided that they could be an even bigger powerhouse if they combined forces.
When AtHome in January acquired the marginally profitable Excite in a $6.7 billion merger, many people discounted the
ultra-high price of the deal and focused on the seemingly unlimited potential of combining an Internet content business with one
on the cutting edge of Internet distribution.
AtHome, which provides a popular high-speed Internet connection through cable lines to replace the cumbersome dial-up
service, boldly proclaimed that by buying Excite it would create ''the new media network for the 21st century.''
It doesn't seem so simple anymore.
Just nine months after the deal was struck, the merits of the Excite/AtHome merger are being seriously questioned. ATT
(NYSE:T - news), which holds a controllling stake in ExciteAtHome and has further complicated the mix, says it is exploring
alternatives for the company.
Rumored scenarios include Excite and AtHome being split in two with the content part of the business being bought by one of a
number of Internet services such as America Online Inc. (NYSE:AOL - news) or Yahoo Inc. (NasdaqNM:YHOO - news).
Regardless of whether any of the rumors turns out to be true, recent events point to several signs that the merger, one of the
biggest in Internet history, was at least somewhat ill-conceived.
For one thing, after months of insisting it had become one big happy family, ExciteAtHome this week moved in the opposite
direction, naming divisional presidents who will oversee the two sides of the business. The company did not explicity say so, but
the new structure looks a lot like the pre-merger structure, in which one president, Ben Addoms, will head Media and
Marketing services focusing on content, while the other, Adam Grosser will head Subscriber Networks working closely with
the company's cable partners.
''I think (the merger) was a mistake because it was overkill,'' said David Simons, an analyst with Digital Video Investments.
''To do what AtHome wanted to do, they didn't have to buy Excite. All they had to do was form alliances with content
providers.''
What AtHome had sought to do through the merger was deliver a multitude of rich-media services like audio and video to
millions of consumers who used the Excite.com Internet portal.
But by opting to buy Excite outright, AtHome not only paid a high price, but may have closed the door on other valuable
opportunities with popular content providers like America Online and Yahoo. Its exclusive alliance with Excite has also fueled
the debate over ''open access'' which still rages today and threatens to hamper its growth.
At the same time, all the focus on the broadband, media-rich Internet of the future seems to have taken some of the attention
away from the thriving narrowband Internet environment of today. Recent data shows Excite slipping from the number two
Internet portal, to number four, amid a slowdown in traffic growth.
''Since Excite has become part of AtHome, it certainly seems to have lost much of its competitive edge in terms of
here-and-now competition,'' said Simons. ''AtHome has harnessed it to its broadband future.''
No one doubts that broadband future is coming -- some day. The question is when. While consumer demand for the AtHome
service is brisk, the company itself has admitted it cannot grow as fast as it would like because of the time-consuming,
labor-intensive process of installing new customers.
''They can only grow as fast as they can get trucks out to install the service,'' said William Blair and Co. analyst Abhishek
Gami.
Still, Gami remains a believer in ExciteAtHome, noting that a company could have worse problems than having demand outstrip
its capacity to expand.
''I haven't met a single person yet, who doesn't like the deal,'' Gami insisted. He pointed out that while Excite may have slipped
from the number two position, it continues to report robust sales growth.
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