Getting Excited About Excite@Home
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On paper, mergers always make sense. There are usually synergies, cost efficiencies, and increased marketshare.
One merger that looked particularly bright was that between @Home and Excite, which was struck in May. However, since then, the new entity -- Excite@Home (ATHM) -- has fallen from a high of $99 to $42-13/16.
Then again, the Net stocks have been rocky since then, which helps explain some of the fall. But there are other reasons. First of all, the Excite@Home deal was very complex and likely diverted management's attention away from the core business.
The second cause may be AT&T, which owns 26 percent of Excite@Home and has 58 percent of the voting power (this was the result of AT&T's purchase of Tele-Communications Inc).
Interestingly enough, last week a shareholder suit was filed against AT&T, alleging that the telephone giant is not allowing Excite@Home to execute on its business plan.
Despite all this, the fact is that the company is starting to show results. Yesterday, Excite@Home reported its quarterly results: revenues surged from $58 million to $113 million and registered users increased by 16 percent to 44 million. In fact, with the recent purchase of MatchLogic, Excite@Home will be able to "data mine" this growing registered user base.
But the real value of Excite@Home is not Excite, but @Home, which is the broadband component of the company. Basically, @Home has exclusive agreements with Comcast, Cox Communications, Shaw Communications and Rogers Communications until the year 2002.
There are many companies who desperately want access to these broadband pipes and will pay a premium for it.
But, of course, a deal will need the blessing of Ma Bell. And it looks like this will happen.
- Excite@Home has already undergone a reorganization, dividing the company into a media division and subscriber access division
- a recent FCC ruling indicates that the proposed merger of Media One would not be blocked
- the resignation of the Net chief at AT&T, Leo Hindery, who was dead-set against the marriage of broadband and content.
In the past few months, Excite@Home has been the subject of a myriad of buyout rumors, with Yahoo!, AOL and even Microsoft among the predators.
While it usually a bad idea to buy a stock based on a potential merger, Excite@Home is an exception. The next phase of the Net is broadband. Not only does this company have exclusive cable agreements, but is also rapidly building its subscriber base, which increased by 35 percent to 840,000 in the last quarter.
In fact, it seems reasonable that, in a few years, the company could have 10 million subscribers -- thus making Excite@Home an irresistible target for buyout.
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