ELNK to acquire ONEM:
internetnews.com
EarthLink Lands OneMain.com for $308 Million
By Patricia Fusco
EarthLink Inc. shored up its rank as the nation's second largest fee-based Internet service provider
Thursday when it acquired OneMain.com and its 762,000 subscribers.
With the two companies combined, EarthLink (NASDAQ:ELNK) will provide dial up access to more
than 4.2 subscribers nationwide.
EarthLink will purchase OneMain.com (NASDAQ:ONEM) through a cash and stock transaction valued
at approximately $308 million, or approximately $12.27 per share for each of OneMain.com's 25.1
million common shares outstanding.
The purchase price consists of approximately $150 million in cash and approximately 8.8 million shares of
EarthLink common stock valued at $158 million at Wednesday's closing price.
The transaction expands EarthLink's national market coverage from major population centers into rural
communities and smaller cities where OneMain.com has focused its operational efforts.
Garry Betty, EarthLink chief executive officer, said it saw an opportunity to leverage wider market appeal
and drive growth from rural and secondary markets in the U.S.
"Consistent with EarthLink's mission to become one of the world's leading ISPs, the acquisition of
OneMain.com strategically positions EarthLink to capture market share in one of the fastest-growing
segments in the ISP marketplace, rural America and smaller cities," Betty said.
Steve Smith, OneMain chairman and chief executive officer, said its key business areas complements
EarthLink's strategic initiatives in its narrowband, broadband, Web hosting and e-commerce and
advertising business segments.
"With EarthLink's substantial resources and national presence, we believe today's announcement brings
together two like-minded organizations focused on delivering high levels of customer service and will
enhance the online experience of OneMain.com subscribers," Smith said.
In addition to EarthLink's purchase of OneMain's almost 730,000 dial-up accounts, the national ISP will
pick-up 27,000 Web hosting customers, and 5,000 broadband customers.
The transaction is expected to close in the fourth quarter. With this transaction, EarthLink expects to end
the year with approximately 5 million members and annualized revenues of approximately $1.3 billion.
Bill Whyman, Legg Mason, Inc. Precursor Group analyst said the deal illustrates the fact that scaling up is
the only way to succeed in the Internet connectivity business.
"This is a race for scale, and scale drives down the economics of this ISP," Whyman said. "EarthLink is
still far behind AOL. But the real value of the deal is buying customers and throwing them onto your
network."
Whyman added that the market should expect to see more consolidation of ISPs.
"The retail ISP business is like a game of musical chairs," Whyman said. "There are fewer chairs for ISPs
to grab and sit in the market. EarthLinks acquisition of OneMain is part of the consolidation in the ISP
market weve all been expecting. Just like the MindSpring deal, we can expect to see fewer ISPs
playing in the retail market."
EarthLink also announced Thursday that its board of directors authorized a plan to repurchase up to five
million shares of EarthLink common stock through open market purchases.
EarthLink purchased MindSpring Enterprises Inc. in September 1999. The deal merged MindSpring's
almost 1.3 million subscribers with EarthLink's members totaling more than 3 million customers.
OneMain acquired its subscriber base through a series of purchasing small regional ISPs across the U.S.
Known as an ISP roll-up firm, OneMain stopped its buying spree last fall and transitioned its ISP
collective into a formidable business focused on delivering local content to underserved markets.
America Online Inc. remains thenation's largest Internet service with more than 22 million members. But
EarthLink is committed to rivaling the behemoth in the fee-based ISP market segment, even though it has
some 18 million additional customers to acquire to catch up to America Online. (NASDAQ:AOL) |
