EarthLink Network Inc. and MindSpring Enterprises, Inc. Thursday merged in a deal that will create the nation’s second largest Internet service provider with an estimated subscriber base of more than 3 million members.
As part of the deal, MindSpring (MSPG) and EarthLink (ELNK) will both merge into a newly formed public company known as EarthLink. Upon regulatory approval the transaction is expected to close in the first quarter 2000. The combined company will trade under EarthLink’s symbol.
Based on the closing price of both companies’ stock on Wednesday, the combined market capitalization of the new company would be more than $3 billion. The merged company will have annualized revenues of nearly $650 million, based on second quarter statement.
Both EarthLink and MindSpring have pursued aggressive growth strategies over the past five years. By combining their marketing channels, customer service and acquisition expertise, the merged anticipates that it should surpass all other national ISPs by establishing itself as the clear alternative to America Online Inc. (AOL).
The new company will be led by executives from both EarthLink and MindSpring. Charles Brewer, MindSpring founder, chairman and chief executive officer will chair the new company. Charles “Garry” Betty, EarthLink president and chief executive officer, will be chief executive officer. Mike McQuary, MindSpring president and chief operating officer, will be president and Sky Dayton, EarthLink founder and chairman, will be a director. Betty and McQuary will also serve on the board.
Betty said the deal would leverage both companies’ strengths in pursuit of continued growth in the U.S. ISP marketplace.
“I believe this marriage of equals will position the new company as the clear leader in the Internet access arena,” Betty said. “By leveraging the synergies between our operations, marketing channels and member service philosophies, we will have built a solid platform to service our current members and, at the same time, accelerate our aggressive growth strategy.”
“Today starts a new era in the Internet access arena. The new company definitively establishes us as formidable number two player behind AOL.”
Some think the merger won’t put a dent into AOL’s impressive share of the industry unless the companies bolster their marketing schemes.
Kate von Goeler, an analyst from Cahners In-Stat, said AOL probably won’t feel much of a threat from the combination.
“AOL has 18 million users. They have six times what MindSpring and EarthLink will have at the end of this acquisition,” she said.
“I think if MindSpring and EarthLink do some good branding and marketing they will be able to capture a lot of what they call AOL graduates who are unhappy with their services but I don’t think they will do that unless they signifigantly boost their marketing.”
Brewer said clients could expect the same award-winner service from the new business alliance.
“Sky and I both founded our companies after our first frustrating attempts to get on the Internet,” Brewer said. “We created our companies with a deliberate focus on providing our members with superior service. So it’s no accident that both EarthLink and MindSpring have consistently been recognized as the two leading ISPs in customer service and satisfaction. Together, we will continue delivering the same award-winning service and support that our members expect.”
Dayton said the two companies have mirrored each other’s efforts since they both entered theISP business.
“Five years ago, Charles and I were among the few visionaries who saw the potential in the Internet to redefine the way people communicate,” Dayton said. “In many ways, MindSpring and EarthLink’s vision, philosophy and growth have been a mirror image of each other since we started. But with more than 70 percent of US households still not connected to the Internet, we both realize we are still facing a market in its infancy. This merger combines two companies who share a vision, and it gives us the tools to bring great Internet service to the masses.”
McQuary said the business partners intend to utilize what both companies have learned over the years to expand their business even further.
“This unique partnership literally brings together some of the best minds in the Internet industry,” McQuary said. “We believe that the exceptional pool of talent and resources from both sides will propel the new company to new heights in the rapidly growing Internet space.”
“By combining forces and unifying our spending with vendors we will create a new brand of efficiency,” McQuary added. “By the end of 2000 we plan to service over 5 million members and surpass 8 million subscribers by 2001. While focusing on adding new clients, our superior customer service will work to retain current members. This is a two-horse race between us and AOL.”