Excite@Home Corp. raised some desperately needed cash earlier this month through a sale of its assets — including a stake in an Australian broadband venture — but it still has a long way to go before it can consider itself financially stable.
Excite raised about $40 million in the past two weeks, a far cry from the more than $200 million some analysts estimate it needs to survive. Most of that cash came through the sale of its BlueMountain.com online greeting-card subsidiary to AmericanGreetings.com for $35 million.
Excite also said it sold its interest in Excite@Home Australia to its partner in the venture — Optus Inc. — for an undisclosed sum.
Analysts estimate that Excite's interest in the Australian venture was worth about $5 million.
"Does this get them out of the woods?" asked Janco Partners analyst Matt Harrington. "No. But it is a step in the right direction."
Harrigan estimated that Excite's funding gap is in the $85-million to $100-million range, excluding the $100 million in convertible bond debt the company owes to Promethean Investment Group LLC.
The cash-strapped Redwood City, Calif.-based Excite@Home announced Sept. 18 that it had sold off its interest in Excite@Home Australia to its joint-venture partner, Optus. But that isn't a complete break: The company has forged a deal to provide Excite@Home Australia with broadband technology and brand licensing.
"This partnership helps us to further streamline our business and focus on broadband," Excite chairman and CEO Patti Hart said in a prepared statement.
That arrangement mirrors an August deal struck with Dutch cable operator Essent Kabelcom. Essent bought out the remaining interest in the @Home Benelux high-speed service from Excite@Home and investor Intel Capital.
Excite@Home officials see these deals as a model for the company's future relationship with U.S. cable operators — one in which the company is more like an ISP than an overall network owner and operator.
"What we are doing overseas is licensing our broadband technology, so this transaction sharpens that focus by discontinuing the obligations we might have had as an equity owner," an Excite@Home spokeswoman said. "The sale of our equity allows us to obtain some cash in exchange for our interest, and it helps reduce overall operating costs, and it allows us to focus on our core business, which is broadband."
Times have been tough for Excite@Home. Although it claims the top broadband provider spot with 3,674,000 subscribers worldwide, it has been dogged in part by sagging Internet content properties. It posted a $65.1-million second-quarter net operating loss.
On Sept. 9, Excite@Home's chief financial officer, Mark McEachen, resigned to pursue other interests.
To further cut costs, the company has also endured several waves of layoffs this summer.
Even so, estimates are Excite@Home will need up to $200 million to stay afloat through 2001.
SOLD AT BIG DISCOUNT
Meanwhile, cable affiliates Cox Communications Inc. and Comcast Corp. have already announced that they will end their distribution agreements with Excite@Home in June 2002.
The sale of BlueMountain was the first in what analysts had expected to be a string of asset sales conducted in order to raise cash.
For weeks, AmericanGreetings.com — the online subsidiary of greeting-card giant American Greetings Corp. — had been rumored to be negotiating to purchase the Web service. The all-cash deal is a fraction of the $780 million Excite@Home paid for BlueMountain two years ago during the height of the dot-com boom.
The 1999 deal included about $350 million in cash, with the rest paid in Excite@Home stock.
Excite@Home has been scrambling to raise cash ever since its auditors issued doubts about its ability to continue as a going concern in early August. Since then, the company had raised $185 million in two separate deals. However, its falling stock price — Excite stock closed at 39 cents per share on Sept. 18 — could trigger a clause that would force the company to immediately repay a $100 million.
That debt holder — Promethean — demanded last month that Excite repay $50 million of the debt by Aug. 31. Promethean later deferred that demand and is currently negotiating with Excite@Home.
While the narrowband side of the business has been dismal — Excite's media-related revenue declined to $28.6 million in the second quarter from $74.7 million in the prior year — its broadband unit has been strong. Revenue from high-speed data access in the same period rose 70 percent to $89.7 million.
Although Excite was expected to be looking for a buyer for its Web portal, one part of the BlueMountain deal indicates that may no longer be the case.
Excite agreed to make BlueMountain its preferred provider of online greetings for the next three years. Excite also agreed to buy about $3 million in advertising on the AmericanGreetings.com and BlueMountain.com Web sites to promote the Excite online network.
BlueMountain was one of the highest flyers on the Internet two years ago, at one point boasting 12 million users. Although it had no discernible advertising revenue, BlueMountain had hoped to turn its tremendous amount of "eyeballs" into paying customers or ad sales, but could never find an effective way to do that.
Because Excite@Home agreed to buy advertising on BlueMountain, Harrigan said it is likely the company will try to keep its Excite Web portal operating.
"If you look at what's happened, buying $3 million in advertising from BlueMountain over the next three years is inconsistent with shutting the portal down," he said.
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