Ending months of speculation over whether the company would
be split in two, Excite@Home Corp. said last week that it would issue a tracking stock for
its media-services unit that more accurately reflects the company's operations.
Excite@Home plans to issue the tracking stock -- which will
include the Excite narrowband and broadband portals, associated distribution rights and
advertising and targeting services -- by the third quarter of next year.
The data-over-cable provider said those media assets
generated about 65 percent of its total revenue last quarter.
The idea is to have stocks that more accurately reflect the
content and distribution assets and that possibly provide deal currency to compete with
Internet-portal powerhouses like Yahoo! Inc.
The tracking-stock idea appeared to be inspired by former
Tele-Communications Inc. chairman and current Liberty Media Group chairman John Malone.
Malone -- who sold TCI to AT&T Corp. in March -- spun off TCI's media assets, now
Liberty Media, into a tracking stock after the AT&T merger.
"It should give them more flexibility," SG Cowen
Securities Corp. analyst Gary Farber said. "It's like pulling a page out of the
old TCI playbook. Separating the content and the distribution makes it easier for them to
The deal also appears to put to rest rumors that the
company would either be split up -- by separating its media and subscription assets into
separate autonomous companies -- or spun off by stockholding cable partners.
The tracking stock is set up to be a tax-free exchange to
existing shareholders, so selling or spinning off the asset within three years would wipe
out tax benefits.
At Home Corp., the parent company of Excite@Home, has been
the center of much controversy since it bought Internet portal Excite Inc. earlier this
year in a deal valued at $6.7 billion.
At Home saw a vehicle to capture vast numbers of narrowband
Internet users and cash in on the growing content aspect of the high-speed Internet
business. But the arrangement didn't go over well with its big cable affiliates --
AT&T Broadband & Internet Services, Comcast Corp. and Cox Communications Inc.
According to several published reports, the cable partners
wanted Excite@Home to focus on high-speed-data distribution over their cable plant.
Getting mixed up in the content side of the business appeared to some to just
Former AT&T Broadband president Leo J. Hindery Jr. was
an outspoken opponent of Excite@Home's content play, which some said may have played
a role in his departure from the company in October.
Excite@Home has also come under a magnifying glass over the
expiration of its exclusivity deals with the cable partners -- called the Master
Distribution Agreement -- starting in 2002. Excite@Home chairman Thomas Jermoluk told
analysts the tracking-stock plan will have no effect on the MDA.
President George Bell reiterated the commitment of its
cable partners to Excite@Home. "All of our cable partners are staying in," he
said. "Nobody is going to bail out early."
But Jermoluk added that the new alignment allows
Excite@Home and the cable affiliates to move forward with talks about the landscape after
"It settles down what everybody's going to be
doing, and it clears the playing field for us to be able to have those discussions,"
Jermoluk said. "Much of what has occurred over the last six or nine months, given the
breadth of decisions we had to make about the strategic alignment of the partners, was not
a very fertile ground for sowing the seeds of what happens after 2002 when you're not
sure about what your alignment is today."
All of this came shortly after AT&T Broadband president
Daniel Somers blasted Excite@Home at a conference in Denver earlier this month over
installation, service-quality, connection, network-maintenance and customer-support
problems with the high-speed service.
The tracking stock may have appeased the cable investors,
for now. "We are in total alignment with Excite@Home on this transaction,"
AT&T chairman C. Michael Armstrong said in a prepared statement.
"The media business represents a substantial
opportunity for Excite@Home, its partners and its stockholders," Armstrong added.
"This structure will allow Excite@Home to aggressively build its media business
independently, while working with AT&T and its other cable partners to drive the
deployment of broadband services to consumers. Our relationship with Excite@Home has been
very positive for AT&T, and we will continue to have a strong, durable and robust
relationship under our contract and beyond."
"This transaction represents a step forward for
Excite@Home," Comcast president Brian Roberts added in a prepared statement. "We
are proud of the job that Excite@Home has done to drive the broadband category. Our joint
efforts are the reason why hundreds of thousands of consumers can afford broadband
Added Cox senior vice president of broadband service David
Woodrow: "Providing our customers with a fast and engaging service depends on a deep
integration of Excite@Home's and the cable industry's respective expertise. We
are delighted with Excite@Home's support, and we are confident in our joint ability
to scale our operations to meet increasing consumer demands for broadband access."
AT&T, Comcast and Cox will have little say over the
media segment. The business will have a separate board of directors, dominated by outside
independent members. The three cable companies -- owning shares in the segment relative to
their Excite@Home stakes -- will have minority representation on the board.
Excite@Home's stock rose $5.68 per share on the news
last Monday, closing at $57. It slipped back to $53.38 the following day.
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