Sources close to the Redwood City, Calif.-based company say Excite@Home will file for Chapter 11 bankruptcy protection late this week or early next week unless it receives an unexpected cash infusion. Excite@Home, the nation's largest high-speed Internet service provider with about 4 million customers, does not have enough cash to cover its operating costs and an estimated $800 million or more in debt.
A Chapter 11 filing would shield the company from creditors while it reorganizes its business.
A source close to both companies also said AT&T will make a bid to buy Excite@Home's "platform assets," or network and technology assets, in bankruptcy court, but it's unclear how the negotiations could end.
Separately, Excite@Home continued to pare employees and alter its strategy, announcing Tuesday that it will lay off 500 employees.
Wall Street has been widely anticipating a bankruptcy filing for several weeks as the company runs short on cash and has failed to strike deals with potential new investors. Excite said in August filings with regulators that it had $154 million in cash, but analysts say the company spends at least $50 million every three months.
"In my view, it's inevitable," Davenport analyst Drake Johnstone said of the expected bankruptcy filing. "The only way you'd take over that company is if it went into bankruptcy court and an acquiring company could pay 10 cents on the dollar. There's a potential that AT&T could take over the company after negotiating in court--but even that's not a sure thing."
A potential bid was discussed at AT&T's most recent board meeting held last week, according to sources close to both companies. That undisclosed bid would be floated once Excite@Home files for bankruptcy, the sources said.
An Excite@Home spokeswoman would not comment on bankruptcy-related "rumors." The company issued a tersely worded statement Tuesday morning, noting that it continues to explore "options with respect to its liquidity needs and capital structure."
"The company anticipates needing additional funding and/or financial restructuring in order to continue as a going concern," according to the statement.
Ongoing doubts and new layoffs
Ernst & Young, dismissed as the company's auditor last month, recently expressed doubts that Excite@Home would be able to continue operating. The company may also be in danger of being delisted from the Nasdaq Stock Market.
Excite@Home is also in the hot seat with investors, including Promethean Investment Group. Promethean had demanded repayment of a $50 million loan by the end of August. Promethean backed down Aug. 31, saying it would delay repayment because Excite@Home had "taken concrete steps that may form the foundation for potentially constructive solutions" to the company's problems.
It's unclear whether Promethean has given a new due date for repayment. Promethean executives did not return phone calls Tuesday morning.
Excite@Home also announced plans Tuesday to close one of its subsidiaries and cut back on the features it provides on its Excite Internet portal. As a result, the company expects to lay off 500 employees in the next three months.
Westminster, Colo.-based MatchLogic will close as part of Excite@Home's downsizing. MatchLogic had been the company's Internet marketing and advertising subsidiary. The latest layoffs represent 25 percent of the company's work force. Excite@Home will have 1,350 employees remaining after the latest staff reduction, according to the company.
The Excite Web portal's commonly used feature will remain, according to the company, but people may see some changes on different Web "channels" Excite offers, such as shopping. "The user experience won't change that significantly," according to the company.
Excite@Home's dire situation leaves analysts to believe that the company has no other choice but to declare bankruptcy. That could open the door to a "white knight" acquirer--most likely AT&T--to buy the debt-laden company at a bargain price.
AT&T inherited its @Home stake and board representation from its acquisition of cable TV leader Tele-Communications Inc. AT&T has majority control of Excite@Home and remains its largest shareholder.
Although many analysts dismiss Chapter 11 filing as little more than a formal acknowledgement of the company's financial troubles, the bankruptcy would be the latest step in Excite@Home's precipitous decline.
Only two years ago, @Home's $6.7 billion merger with Excite appeared to have all the makings of an industry leader: heavy traffic, popular technology, major-league financing and a head start over would-be competitors. Billed as a "new media network for the 21st century," Excite@Home is still 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.
But these accomplishments are easily overshadowed by the obstacles Excite@Home must overcome to survive in the post-apocalyptic Internet landscape. The company's stock closed at 27 cents, a historic low and a sliver of the $99 share price it commanded at its peak in April 1999.