RealTime IT News

Win-Win for Excite Chello

Excite@Home unveiled plans to merge its non-U.S. operations with Dutch ISP chello broadband to form Excite Chello, valued at nearly $5.1 billion. The merger deal creates a combined user base of over 300,000 subscribers in 15 countries and boasts a global IP backbone.

Chello is the sibling of Dutch cable giant United Pan-Europe Communications and Denver-based UnitedGlobalCom . Excite@Home's overseas portal and media ventures will be rolled into chello's broadband Net access services. The newlyweds also have plans to combine Excite@Home's TV set-top box technology with chello's exclusive rights to introduce set-top services to its UPC parent's nearly 11 million wired homes.

The merger is expected to wrap up sometime later this year, and under the terms of the deal, Excite@Home and UPC will sink $100 million apiece into Excite Chello in exchange for joint interest in the new company. Meanwhile, AT&T subsidiary, Liberty Media , will contribute a $200 million loan to the new venture which can later be cashed in for shares of Excite Chello. Excite@Home skipper George Bell and UPC's top banana Mark Schneider will assume co-chairmen roles with Excite Chello.

For the most part, this deal is in response to two failed IPO attempts for chello. Goldman Sachs had a whale of a time trying to convince investors to swallow the broadband ISP's $350 million offering. The irony here is that much of the lukewarm response can be traced to the crummy aftermarket performance of the merger between Excite and @Home this time last year.

Burned investors still holding the bag from the pipes and content marriage have generally soured on portly broadband ISP deals. Consistent with its past performance, shares of Excite@Home limped ahead $0.12 higher on marginally heavier than average volume, following news of the deal.

Despite Excite@Home's sluggish stock performance or chello's evaporated hopes for a solo IPO, plans are already in the works to float 10% of Excite Chello in the new issues market by late this year or early next. Now the beefiest broadband ISP outside of North America, signs for a successful IPO look good.

Aside from competing with nascent broadband initiatives from Euro-carriers like Deutsche Telekom's T-Online and France Telecom's Wanadoo, spun off in a frothy $2 billion IPO yesterday, Excite Chello laces up the gloves for a showdown with Terra -Lycos , AOL Europe, and Yahoo Europe.

The meat and potatoes of the competitive landscape are starting to take shape in what will be a global battle over mindshare for content piggybacking on broadband. But make no mistake, the obvious frontrunners here are still America Online and Yahoo! with a pair of, hands down, the most recognizable brands domestically and abroad. While it's still too early to tell which blue chipper lands on top, this deal looks like a big improvement for chello's uncertain market position and a badly-needed boost for Excite@Home's modest overseas initiative.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.

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