Excite@Home Gets Help From Mama

Baldwin Louie — Tue, 19 Jun 2001 18:00:00 -0400

With an $85 million cash infusion from AT&T, Excite@Home executives said Tuesday that they are focused on managing their struggling portal business rather than selling it, as earlier indicated.

Excite@Home CEO Patti Hart said during a conference call after the markets closed that the Redwood City, Calif.-based company is "moving rapidly from being in sales mode to operating ... on a scaled-down basis."

That's a departure from comments the company made in April, when Hart replaced former CEO George Bell and executives said the company was considering selling media operations that don't support its broadband strategy. Advertising revenues from the portal decreased by 41 percent to $45.1 million for the first quarter of 2001, and earlier this month, Excite announced that it is shutting down its portals in France, Germany and Spain.

Asked Tuesday whether the company still wanted to sell its narrowband portal, Excite, or its advertising technology unit, MatchLogic, Hart stopped short of ruling out a sale. It's prudent to entertain offers "to the extent someone has an interest," she said, adding, "There are some underlying capabilities in both of those companies that we think are leverageable."

Fred Moran, head of Internet research at Jefferies & Co., suspects that Excite couldn't find a buyer. "I think they've been trying to sell, probably found limited buyers given the declining growth that [the portal] is facing, and now they want to operate in as cost-effective a way as possible rather than just shut down the asset completely."

Excite, which said in April it needed about $75 million in additional funding this year in order to survive, has been cutting staff by the hundreds and hunting for new financing. After the markets closed Tuesday, the company said AT&T will cancel a contract with Excite that would have allowed the portal to use a portion of the AT&T network to create an optical-fiber backbone and refund $85 million to Excite. Under a new agreement, Excite@Home will pay AT&T $8.8 million per year for the next 18.5 years to cover existing capacity and future upgrades, as well as $7 million in upgrade fees. AT&T owns a controlling interest in Excite@Home.

News of the cash refund from AT&T came on the heels of an announcement last week that Excite privately raised $100 million by selling zero-percent, five-year convertible notes. CFO Mark McEachen said Excite has the discretion to pay back the notes in cash within a year without interest, or by issuing 23 million shares of stock. But on the downside, Moran suggested that the purchaser of those notes might be offsetting its risk by shorting the stock, thus pushing down the stock's price. Since the deal was announced June 11, Excite@Home shares have fallen from $3.55 to $1.90, including a 14 percent drop on Tuesday alone.

Excite is asking shareholders to approve a reverse stock split at a July 24 meeting. Hart said, however, that the company has not received any letter regarding the threat of Excite's stock facing delisting.

Excite predicts that it would break even in the third quarter excluding noncash charges. That would be a major improvement from the first quarter, the latest date for which figures are available, when the company posted a pro forma loss of 15 cents per share.

In other news, Excite reported that it is renegotiating nonexclusive agreements with cable operators Cox and Comcast, a move that has been anticipated amid pressure for open access. Under an agreement with its cable partners, Excite@Home receives 20 percent to 35 percent of monthly access fees paid by subscribers to the @Home service. Excite reported signing up 3.2 million subscribers to its broadband service as of March 31.

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Excite@Home Gets Help From Mama