Cable broadband leader Excite@Home Tuesday finalized talks with AT&T which
allowed it to renegotiate its backbone agreement with the telecom giant and
secure $85 million in cash.
Earlier in the day, rumors were flying that the company planned to sell its Excite portal. But Excite@Home Chairman and Chief Executive Officer Patti Hart quelled that rumor in a conference call Tuesday afternoon.
“We are moving rapidly from being on sales mode with our assets to being on operational mode with our assets,” she said. While she said that the company owed it to its shareholders to not discount out of hand any offer for its Excite or MatchLogic assets, she added, “There are some underlying capabilities in both of those assets that we think are leverageable.”
But while there was no truth to the rumors, Excite@Home stock tumbled 14.4 percent as a result of them and news that the company is seeking shareholder approval for a reverse stock split at a ratio of 1-for-2, 1-for-3 or 1-for-4.
Hart said the fact that the company is seeking such approval does not necessarily mean that it will follow through on a reverse split. Rather, she said, the board wants the option if they should deem it necessary in the near-term.
As for the renegotiated agreement with @Home majority stakeholder AT&T, the deal is the fulfillment of the strategy laid out by former @Home Chairman and CEO George Bell in April. At that time, Bell said the company required an infusion of $75 million to $85 million to remain liquid over the year.
Hart, Bell’s successor, has now attained that goal and then some.
The original agreement was made in December 1998, when @Home purchased an Indefeasible Right of Use (IRU) from AT&T granting it the right to use AT&T’s optical capacity for 20 years in order to create a nationwide Internet Protocol (IP) backbone. Under the agreement, the company was able to activate two OC-48 channels — each with 2.5 gigabits per second of capacity — across a substantial portion of AT&T’s network. That agreement enabled Excite@Home to expand the backbone as its subscriber base grew and as fiber-optic
technology improved.
The terms of the renegotiated agreement stipulate that AT&T will refund $85
million to @Home for the cancellation of the original IRU, and the two
companies will enter into a new agreement, under which Excite@Home will pay
$8.8 million per year to AT&T for the next 18.5 years. @Home said the new
deal covers its existing capacity and future upgrades.
Also, Excite@Home will pay AT&T $7 million in normal upgrade fees under the
existing contract. The company intends to upgrade sections of the network to
OC-192 in the near future.
“Our new agreement provides us the same rights as in the past, but allows us to pay for it over time,” Hart said. “We believe this transaction balances our cash needs with our requirements to continue to leverage leading edge technology.”
In addition to the AT&T deal, last week the company raised $100 million through the private sale of convertible debt through Promethian Capital.
“We now believe that we are funded well beyond the end of the year,” said Chief Financial Officer Mark McEachen.
McEachen said the company should have a cash balance above $175 million at the end of the year and that it expects to break even on an EBITDA basis in the third quarter. He also said the company may be cash flow positive in the fourth quarter.
In related news, Excite@Home said it remains in discussions with Cox Communications and Comcast Corp. over restructuring its commercial relationships with those companies.
“Our discussions with Cox and Comcast are complex and may take some time to complete,” Hart said. “We are pleased with the current state of the discussions and are optimistic about the prospects for our future relationships.
“We have been preparing for the end of mutual exclusivity and we fully embrace the opportunities presented by non-exclusive relationships.”
New Chief Operating Officer Matt Jones added, “The end of exclusivity is something we’ve always planned for and is part of the natural evolution of our relationships with those cable companies.”
McEachen said the discussions will probably continue for several more weeks.
