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Bankruptcy filing imminent for Excite@Home

The leading provider of broadband Internet access is expected to file a pre-packaged bankruptcy filing late Friday that calls for AT&T to acquire its high-speed network.

Excite@Home, the leading provider of broadband Internet access, is expected to file a pre-packaged bankruptcy filing late Friday that calls for AT&T to acquire its high-speed network, according to sources.

An announcement from AT&T and Excite&Home also is expected later Friday.

The deal is expected to close by year-end, subject to a bankruptcy judge's approval. If approved, Excite@Home would become wholly owned by AT&T.

Sources said AT&T has no interest in retaining the Excite portal, so it could be sold to another company.

The court filing, under section 363 of the bankruptcy code, is intended to prevent any disruption in broadband service for the company's 3.7 million customers, according to sources.

Excite@Home's board met Friday and agreed on the deal. Spokespersons for Excite@Home and AT&T could not be reached for comment.

With the filing, Excite@Home would become the latest Net high-flyer to seek bankruptcy court protection while it reorganizes its business. Just this week, Exodus Communications, a provider of Web-hosting services to thousands of companies, also filed for bankruptcy.

see Special report: Excite@Home marriage doomed at the altar? Excite@Home's shares closed at 13 cents Friday. In April 1999, the stock sold for nearly $100. The company has 1,350 employees.

News of the filing caps days of infighting among board members and senior executives, including animosity between executives of AT&T and Excite@Home, regarding the company's fate. But both parties agreed at the end that the pre-packaged filing and asset sale was the best solution.

AT&T depends on Excite@Home to provide Net access to AT&T Broadband subscribers.

The expected bankruptcy filing is the latest in a litany of woes for Excite@Home, a one-time darling of the dot-com era.

The company's auditors said last month that its future was in doubt. Later in August, one of the investment groups that funded the company as a stop-gap measure demanded payment on the $50 million loan.

Although tempers flared among top executives in recent days as financial troubles mounted, Excite@Home has a legacy of tempestuous boardroom struggles.

Since its inception, it has operated under an awkward ownership and governance structure that included significant input from three major cable operators: AT&T, Cox and Comcast. AT&T inherited its @Home stake and board representation when it completed its acquisition of cable TV leader Tele-Communications Inc. in 1999.

As a result, it has appeared unfocused and divided. Nasty bickering between AT&T chief executive C. Michael Armstrong, and Leo Hindery, formerly its top cable strategist, over the direction Excite@Home should take--and the role content should play--left the access provider adrift among the big cable operators' vast assets.

Boardroom divisiveness escalated in March 2000, when Ma Bell assumed majority control of Excite@Home's board of directors and offered to buy the stakes of co-partners Comcast and Cox Communications. At that point, AT&T had a 23-percent ownership stake in Excite@Home and a 74 percent voting stake.

In January, AT&T traded $2.9 billion in its stock for the ownership stakes that competing cable operators Cox Communications and Comcast held. That deal boosted AT&T's stake to 38 percent. AT&T also took a 79 percent voting interest in the broadband Net access company.

Some insiders say AT&T's heavy stake in the company compromised the board's decision-making abilities and took the focus away from Excite@Home shareholders.

"There's a history at the board level of directors' not necessarily operating in the best interest of Excite@Home," a former @Home executive said Friday. "There's a torturous history of folks on the board doing what was expedient, not what was right for shareholders."

With Friday's planned filing, Excite@Home would join a growing list of tech companies that have sought refuge in bankruptcy court.

Another broadband provider, Covad Communications, filed for bankruptcy last month as part of a pre-emptive bid to remain in business.

Exodus Communications, which hosts Web sites for some of the Net's biggest companies, filed for bankruptcy this week, with explicit provisions that are intended to keep the company functioning as it restructures.

The @Home Network, as it was initially called, was founded in the spring of 1995 and it went public in the summer of 1997. Its backers included legendary venture capital firm Kleiner Perkins Caufield & Byers.

Hopes were high for the venture at the outset. For example, the company continues to claim on its Web site that "the market for residential broadband services is projected to grow to 47 million users by 2005 from less than 6 million in 2000." But despite having 3.7 million customers of its own, it has been weighed down by heavy debts and been unable to reach sustained profitability.

In an attempt to provide content that would complement its high-speed connections, @Home bought the Excite Web portal for $6.7 billion in January of 1999. Also as part of this strategy, the company in 1999 spent $780 million for Blue Mountain Arts, a provider of online greeting cards.

But the pipes-and-content strategy failed as online advertising revenue shriveled and investors fled high-flying Net stocks. As a result, Excite@Home went through several management shake-ups and strategy shifts, all of which failed to pull it out of a downward spiral.

Still, Excite@Home is by far the largest high-speed Internet service provider in the United States, and it is among the top 10 ISPs overall when measured by subscribers alone.