On paper, mergers always make sense. There are usually synergies, cost
efficiencies, and increased marketshare.
One merger that looked particularly bright was that between @Home and
Excite, which was struck in May. However, since then, the new entity —
Excite@Home (ATHM)
— has fallen from a high of $99 to $42-13/16.
Then again, the Net stocks have been rocky since then, which helps explain
some of the fall. But there are other reasons. First of all, the
Excite@Home deal was very complex and likely diverted management’s
attention away from the core business.
The second cause may be AT&T, which owns 26 percent of Excite@Home and has 58 percent of
the voting power (this was the result of AT&T’s purchase of
Tele-Communications Inc).
In other words, AT&T is running the show. In fact, AT&T will soon be the
largest owner of broadband cable pipe — once its deal for MediaOne is
finalized.
Interestingly enough, last week a shareholder suit was filed against AT&T,
alleging that the telephone giant is not allowing Excite@Home to execute on
its business plan.
Despite all this, the fact is that the company is starting to show results.
Yesterday, Excite@Home reported its quarterly results: revenues surged
from $58 million to $113 million and registered users increased by 16 percent to
44 million. In fact, with the recent purchase of MatchLogic, Excite@Home
will be able to “data mine” this growing registered user base.
But the real value of Excite@Home is not Excite, but @Home, which is the
broadband component of the company. Basically, @Home has exclusive
agreements with Comcast, Cox Communications, Shaw Communications and Rogers
Communications until the year 2002.
There are many companies who desperately want access to these broadband
pipes and will pay a premium for it.
But, of course, a deal will need the blessing of Ma Bell. And it looks
like this will happen.
Reasons include:
- Excite@Home has already
undergone a reorganization, dividing the company into a media division and
subscriber access division - a recent FCC ruling indicates that the
proposed merger of Media One would not be blocked - the resignation
of the Net chief at AT&T, Leo Hindery, who was dead-set against the
marriage of broadband and content.
In the past few months, Excite@Home has been the subject of a myriad of
buyout rumors, with Yahoo!, AOL and even Microsoft among the predators.
While it usually a bad idea to buy a stock based on a potential merger,
Excite@Home is an exception. The next phase of the Net is broadband. Not
only does this company have exclusive cable agreements, but is also rapidly
building its subscriber base, which increased by 35 percent to 840,000 in
the last quarter.
In fact, it seems reasonable that, in a few years, the
company could have 10 million subscribers — thus making Excite@Home an
irresistible target for buyout.
ALL NEW! internet.com’s HotWatch a monthly e-mail subscription for $99,
featuring Internet Stock Report’s top 10 noteworthy Internet stocks for the
month. Each month you will receive in-depth analysis on the top 10 Internet
stocks to watch with the information you need to assess the fast-paced nature
of Internet stocks. Staying on top of market changes in the Internet Stock
market is what counts. For $99 per year, you receive 12 timely issues sent to
you by e-mail. Don’t wait, our next issue will be out before you know it with a
whole new
perspective on the market. Sign up today at: e-newsletters