2HRS2GO: OneMain.com deal moves EarthLink closer to its destiny

OneMain.com finally got what it wanted Thursday when EarthLink agreed to shell out $308 million to buy the Internet service and content provider. The question now is whether EarthLink will get what it needs out of the deal.

Predictably, OneMain.com (Nasdaq: ONEM) shares rocketed up 3 1/8, or 39 percent, to 11 1/8 on the deal.

That'll happen when a company agrees to pay more than $12 a share for a company that just reported a loss of $40.8 million in its latest quarter and hasn't seen $12 a share in months.

That's no small chunk of change for a company that's been losing money the way EarthLink has to date.

But if EarthLink was ever going to make itself a viable takeover target, a goal that company officials won't admit to but certainly must be hoping for, it had to bring more to the table than 3.5 million subscribers dialing up mostly from major metropolitan markets.

OneMain.com got to this pinnacle, if you can call it that, by hanging its hat on providing Internet access to customers long forgotten by the big boys. If you've got electricity and a billing address, OneMain.com will find a way to connect you to the world.

In the big picture, major Internet access providers (AOL), digital cable companies and DirecTV distributors are struggling to grow beyond the confines of major urban areas. Rural communities and out-of-the-way small towns have customers and, one by one, they add up.

Once the deal closes in the fourth quarter, EarthLink will boast a customer base of about 4.2 million subscribers.

Not bad, but not good enough to make a go of it on its own.

It was almost a year ago that OneMain.com CEO Stephen Smith was bemoaning his company's flagging stock price. But he stuck to his guns, providing content and access to customers largely ignored by large and mid-sized ISPs.

EarthLink CEO Garry Betty is probably thinking the same thing these days after watching his stock fall from a 52-week high of 71 1/4 in July to a low of 10 9/16 in April.

In its latest quarter, EarthLink posted a loss of $51 million, or 43 cents a share, on sales of $219.7 million.

EarthLink's proud to say it's the nation's second-largest ISP, behind America Online (NYSE: AOL). And the Clippers are the second-best basketball team in Los Angeles.

Eventually, regardless of your No. 2 status, you have to either make money or find another company willing to buy you and assume your overhead. Unless, of course, EarthLink can somehow grow its customer base and turn a profit, a prospect that analysts don't see happening until sometime in 2002 at the earliest.

At least now EarthLink can add some small-town accessories to its outfit while parading up and down Wall Street, hoping to capture the attention of a sugar daddy that could use 4.2 million sets of eyeballs.

"It's the beginning of EarthLink tapping their powerful balance sheet," Frederick Moran, an analyst at Jefferies & Co. told Reuters. "This deal makes EarthLink more attractive for their own potential sale of itself to someone like (WorldCom (Nasdaq: WCOM), other telecom or tech giants or foreign players like T-Online AG."

Naturally, EarthLink doesn't want this transaction to be viewed in such jaded terms, but then again…

"We are a public company and if someone wants to buy us they can," Betty told Reuters. "Our primary focus is building a business that's going to be around for a long time."

That's exactly what Smith and OneMain.com were saying last year.