RealTime IT News

Prodigy Urges Shareholders To Wait

Prodigy executives, hoping to avoid any improprieties, has named a special independent counsel to advise shareholders affected by SBC Communications intentions to buy out the Internet service provicer (ISP).

There is approximately 10 percent of the fifth-largest ISP that isn't owned by Mexican billionaire Carlso Slim Helu or SBC. The independent board is expected to provide its recommendation or rejection of SBC's offer by Oct. 16.

The news comes a week after the incumbent local exchange carrier (ILEC) signaled its desire to purchase all the shares of Prodigy owned by Helu, which comes out to roughly 48 percent. The deal, valued at approximately $385 million, puts $162 million in the coffers of the TelMex (Mexico's monopoly telecommunications company) owner.

Deciding enough was enough, shareholder SBC Communications, Inc., recently made the necessary moves to acquire its digital subscriber line (DSL) and dial up Internet service provider (ISP) arm after watching the ISP continue its downward spiral. Prodigy has been plagued with financial difficulties for more than a year now, even after considerable bailouts by its telco parent.

Despite its popularity with consumers, who rewarded the ISP's customer support efforts with an impressively low churn rate, Prodigy was never able to turn its operations around and make its business profitable. A $110 million bailout and the transfer of all of SBC's DSL customers earlier this year wasn't enough to get the company's finances in the black.

It's second quarter 2001 finances, reported July 26, posted meager returns on the SBC investment, with only $3 million in earnings before interest, taxes, depreciation and amortization (EBITDA).

Tuesday's announcement is likely to improve the company's value in the short term. The stock's value, which SBC has announced to buy back at $5.45 per share, jumped to $5.51 before the market closed.