[email protected] Pulls The Plug

[email protected] Friday says it has commenced a Chapter 11 bankruptcy case in a San Francisco court and then agreed to sell its broadband Internet business (the @Home part) to its largest investor, AT&T for the cool sum of $307 million.

Meanwhile, AT&T late Friday confirmed that it, in turn, has entered into a confidential agreement with Comcast in hopes of reaching a merger pact regarding AT&T Broadband.

Combined, the two announcements concerning AT&T Broadband begs the question: “Why doesn’t Comcast just talk directly to [email protected] to acquire the @Home assets?”

Well…in addition to being @Home’s controlling shareholder, AT&T has forced Comcast to enter into an agreement that also “restricts certain discussions between Comcast and third parties” without AT&T’s pre-approval.

AT&T officials couldn’t be reached for comment on Saturday.

At $307 million, AT&T stands to get a bargain out of the @Home acquisition, which is a mere shadow of the original $6.7 billion merger of Excite and @Home. The deal is expected to impact some 3.6 million customers worldwide.

Extra financing may be unnecessary, say AT&T executives, as [email protected] believes it has enough money to continue to operate through the post-petition trade including taking care of employee obligations. Excite has about $150 million in cash and $1.1 billion in debt, according to its latest filings.

The decision to choose Chapter 11 protection lets [email protected] maintain operation of its high-speed cable Internet access services and other related services during the sale approval process.

“This filing is a tool to protect the value of the broadband business for the benefit of the company’s financial stakeholders and will help reassure our customers that service will continue uninterrupted through the restructuring process,” says ExciteAtHome chairman and CEO Patti Hart. “AT&T’s offer reflects the value in our network, services, customer base and skilled employees.”

Speaking of which, a spokesperson with AT&T say the company plans to hire a “substantial” amount of Excite workers as part of the deal. Excite’s employees currently number just under 1,500.

The Redwood City, Calif.-based company had been on the brink of financial collapse for some time and only keeping afloat by greatly reducing staff and getting rid of its investments with MatchLogic, Cox and Comcast and Enliven in the span of five months.

The company really began its slippery slope after a SEC report filed by Ernst & Young, Excite’s auditors, raised “substantial doubt” that the company could continue . Excite dismissed the auditing firm. As a result, creditors began lining up demanding that [email protected] pay up some $50 million in notes.

The sale to AT&T is still subject to the closing conditions, including bankruptcy court approval. There is also a slight chance that a higher bidder will emerge. That is unlikely though considering that AT&T owns 38 percent stake in [email protected] and a 79 percent voting interest.

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