Wall Street Journal Article on ATHM tracking stock:
November 22, 1999
Tech Center
Excite At Home Plans to Establish
Tracking Stock for Media Assets
By KARA SWISHER
Staff Reporter of THE WALL STREET JOURNAL
Excite At Home Corp., responding to confusion over its strategic direction, plans to establish a tracking stock for its Internet media assets.
The move will separate the media assets from the Redwood City, Calif., company's subscription service, which offers high-speed Internet access over cable-TV systems. The new tracking stock will be governed by a separate board of directors, although little else is expected to change in the management or ownership of Excite At Home as a whole.
The move is intended to help investors distinguish between the two businesses and provide a currency for the media business to expand. Excite At Home was created by the merger of high-speed Internet-access service At Home Corp. and Web portal Excite Inc. in a deal valued at $7.5 billion when it was announced last January. The combination was made to bolster At Home's weaker content and services offering, and Excite benefited from a requirement that cable companies using the At Home access service also use Excite as the main interface for their "broadband" services.
But the merger also created potential new conflicts for investors and competitors, especially because of an unwieldy governing structure and the entrance of AT&T Corp. as an owner. Many decisions at the company required input from all its owners, hindering the media business's ability to compete with rapidly moving rivals like Yahoo! Inc.
AT&T, through its purchase of cable giant Tele-Communications Inc., owns 26% of Excite At Home's common shares and 57% of its voting stock, although that stake doesn't carry control because of a complex set of corporate bylaws. Instead, cable companies such as Cox Communications Inc., Comcast Corp. and Cablevision Systems Corp., who also hold major stakes, can also exercise substantial sway.
The tracking-stock solution was initially suggested by director and cable executive John Malone, who fashioned a similar solution with Liberty Media for media assets of TCI before it was bought AT&T. Many other media and communications companies have tried or considered the idea in a bid to distinguish the business models and growth prospects of various divisions, but the tactic remains relatively rare in Silicon Valley.
Media Business Independence
With so many powerful owners, all with different objectives, Excite At Home executives acknowledge that the media business has been hampered. The tracking stock and new board structure, they argue, will help give the media business more independence and the ability to use its stock to make acquisitions and build its business.
"We think this is the best way to take advantage of all our assets," said Thomas Jermoluk, Excite At Home's chairman and chief executive officer. "The subscription business will grow from its link to the media business, which can now operate without saluting down the chain of command of the whole company."
The media business will include the existing Excite service and the portal for broadband services, with its exclusive distribution rights with Excite At Home's cable partners, plus advertising and customer-targeting services. Those operations will be governed by a board that will consist of a majority of independent directors, with minority representation of AT&T, Comcast and Cox.
Excite At Home expects that the tracking stock will be distributed on a tax-free basis to its shareholders, with one share in the media business issued for each share of the company's existing stock. As a result, current Excite At Home shareholders will retain their current ownership stakes in both stocks. The transaction must be approved by shareholders and isn't expected to take place until the third quarter of next year for tax reasons.
Once the tracking stock is created, the media assets cannot be spun or sold off for three years, the company said. No other specifics, such as a stock symbol, have been determined.
Excite At Home's board authorized the company to create the tracking stock last Wednesday night, although they had been discussing the plan and also other options for many weeks.
Political Target
Creating more independence between the subscription and media businesses could help on several fronts, although tracking stocks haven't always performed as well as many companies have hoped they would. But it could relieve other problems. The exclusive arrangement between Excite At Home and cable companies became a political target for competing Internet companies, such as Yahoo and America Online Inc., which have waged a noisy campaign to gain equal access to the cable systems.
The controversy and uncertainty hurt company morale, Mr. Jermoluk acknowledged. Excite At Home's stock price and its Web traffic have suffered, and the company was beset by nagging rumors that it might spin off or sell the media businesses. It was only recently that the company made its first major acquisition since the merger, paying about $780 million for the Web site of a free online greeting-card service called Bluemountainarts.com (www.bluemountainarts.com1).
Excite At Home officials said the purchase was a sign that its owners were determined to cooperate. Mr. Jermoluk said a group was formed recently to explore how to better structure the company, with participation of top executives from AT&T and other cable partners.
George Bell, who is At Home Excite's president, noted the media business will now have to negotiate with its parent about what happens after its exclusive contracts with cable companies expire in two years. He hopes to gain leverage by expanding the media business's customer base among broadband users, which he said will be helped by attracting a new board made up of top media executives.
"This is a very big opportunity for all of us for a lot of different reasons," Mr. Bell said, noting that the company's owners saw the need for aggressive action. "I think everyone understood that we might have been putting a high-market Internet company in jeopardy and that they bought an obligation to keep going."
C. Michael Armstrong, AT&T's chairman and chief executive officer, issued a statement expressing support. "We are in total alignment with Excite At Home on this transaction," he said, also noting that he expects AT&T to have a long-term relationship with the company.
Mr. Jermoluk said such statements and the board's action are positive signs for the company. "They are saying they like this business," he said. "I think this will indicate that things are going to be much more stable."
--------------------------------------------------------------------------------
URL for this Article:
interactive.wsj.com
Hyperlinks in this Article:
(1) bluemountainarts.com
--------------------------------------------------------------------------------
Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.
Printing, distribution, and use of this material is governed by your Subscription Agreement and copyright laws.
For information about subscribing, go to wsj.com |
