ATHM at $55 in Frankfurt
quote.bloomberg.com.
Mon, 22 Nov 1999, 7:07am EST
Excite At Home to Issue Tracking Stock for Web Unit
Bought Six Months Ago
By Mylene Mangalindan
Excite At Home to Issue Tracking Stock for Web Unit (Update2)
(Updates share price, in 2nd paragraph.)
Redwood City, California, Nov. 22 (Bloomberg) -- Excite At
Home Corp., which provides Internet access through cable-TV lines
to almost 1 million homes, said it will issue a tracking stock for
the Excite Web site business it acquired six months ago.
The plan raises the possibility that Excite At Home will
forge alliances to distribute other online services, such as
America Online Inc., the world's largest Internet service. Excite
At Home shares rose 5.8 euros, or 12 percent, to 53 euros ($55) in
Frankfurt trading.
Web content providers, such as America Online, Microsoft
Corp. and Yahoo! Inc., covet access to At Home's cable pipeline
because it delivers the Internet 50 times faster than phone
modems, speeding up electronic-commerce transactions. Splitting
off Excite would enable At Home to offer AOL, Microsoft's MSN
network or Yahoo on its cable links to millions of homes.
'Even though Excite makes more money for them, they have the
network,' said Peggy Ledvina, analyst at Dain Rauscher Wessels,
who rates Excite At Home a 'buy.' ``What matters is how many
people they can get on it.'
AT&T Corp., soon to be the largest U.S. cable-TV operator,
owns 26 percent of Excite At Home, formed in May when At Home
Corp. bought Excite Inc., now the sixth-most popular destination
on the Web. AT&T shares rose 1 euro to 46.50 euros, after falling
as much as 0.5 euro.
The approval of a tracking stock would enable America Online,
which has 19 million subscribers, to negotiate with Excite At Home
for access to its network. AOL and other ISPs want open access,
which would allow them to transmit their Internet offerings over
AT&T's cable system for a fee.
The tracking stock gives Excite At Home's media business more
flexibility without affecting its cable partners' holdings in the
company's Internet-access business, Excite At Home Chairman Tom
Jermoluk said in an interview.
Excite At Home shares have dropped 48 percent since April 13
on reports that AT&T and other Excite At Home board members
couldn't come to an agreement on the company's future.
``One main achievement is to rid ourselves of the speculation
regarding ourselves and our (cable) partners. This puts to bed all
the speculation,' Jermoluk said. ``There's been this overhang on
the stock' as a result of the speculation about the company's
fate, he said. ``Frankly it hasn't been good for us.'
In September, AT&T said it's exploring alternatives for its
investment in Excite At Home. Shares of Excite At Home surged 13 percent after that announcement amid investor optimism that it
would be acquired or ally with companies seeking to deliver online
services through its cable links.
Tracking Stock
Excite At Home said it will issue a proxy describing the
tracking stock in the first half of 2000. The shares will be
distributed in the third quarter.
The company will combine its media properties, including the
Excite Web portal business, its Enliven interactive-advertising
unit and its Matchlogic direct-marketing business, under this
tracking stock.
The tracking stock will be distributed to all Excite At Home
shareholders on a pro rata and tax-free basis. The media business
will be governed by a board that will consist of a majority of
independent directors with a minority representation of the
company's main cable partners.
Some details about Excite At Home's new tracking stock still
need to be resolved, such as a name for the media business and
appointment of the independent board directors.
Due to tax issues, the tracking stock cannot be spun out into
an independent company for a minimum of three years, Jermoluk
said.
Fast Track
Excite At Home's decision comes during a period when several
companies have contemplated or turned to tracking stocks to
capture the momentum and high valuations given to shares of
Internet companies, and to boost the parent company's flagging
stock price.
The Walt Disney Co., the world's second-largest media
company, combined its online assets with Internet search service
Infoseek Corp. to create a new company and tracking stock called
go.com.
AT&T may issue tracking shares for its cable-TV and wireless
businesses in the first half of 2000, analysts said. They believe
AT&T could make an announcement early next month.
Microsoft, the world's largest software maker, had also
considered issuing a tracking stock for its Internet businesses.
This month, it sold a 13.6 percent stake in its Expedia online
travel agency and raised $72.8 million. Expedia shares have
tripled since they were offered on Nov. 10.
Two Divisions
The issuance of a tracking stock for Excite At Home's media
properties effectively splits the company into two units: its
media properties and its Internet access business, or subscriber
network services.
The Internet-access business centers around the company's At
Home network, which provides Internet connections through cable-TV-
lines to residential subscribers at speeds as much as 50 times
faster than conventional dial-up telephone modems.
The subscription business will also focus on Internet access
services to companies and commercial organizations called At Work.
As of Sept. 30, the company was providing At Work services to
about 4,200 customers. Customer service and management of the
computer network will fall under this unit.
Subscriber network and other services composed about $37.0
million, or 33 percent, of the company's total third-quarter
revenue of $112.6 million, according to the company's latest 10-Q
filing. The company had more than 840,000 At Home subscribers as
of Sept. 30.
Excite At Home's media and advertising services generated
$75.6 million, or 67 percent of the company's total third-quarter
revenue of $112.6 million. This revenue includes sales from online
advertising, sponsorship electronic-commerce agreements, ad
serving and targeting services.
AT&T's Rein
AT&T controls 58 percent of the shareholder voting rights
through its 26 percent stake in Excite At Home.
At Home acquired Internet search service Excite in May for
$8.26 billion. AT&T acquired its stake in Excite At Home through
its purchase of cable-TV giant Tele-Communications Inc.
Other investors in Excite at Home include cable operators
Comcast Corp., Cox Communications Inc., Shaw Communications Inc.
and Rogers Communications Inc. Excite At Home has exclusive
contracts with the cable partners to offer Internet access to
their customers through 2002.
Many investors and analysts have speculated about Excite At
Home's future since the completion of At Home's acquisition of
Excite in May.
Excite At Home confirmed in July that it had been in talks
with other Internet companies such as America Online and Yahoo
regarding possible transactions. Later, the company said the talks
had centered around its home page, or the first Web page that
subscribers see when they log into the At Home service.
In August, Excite At Home President George Bell quashed
speculation that the company was in acquisition talks with Yahoo.
He said the companies had discussed distribution of Yahoo on At
Home's system.
Speculation has also surfaced repeatedly this year that AT&T
was in talks with AOL to forge an agreement that would give AOL
access to Excite At Home's high-speed cable network.
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