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Excite@Home, European cable operator scrap alliance

The high-speed Net access provider and UnitedGlobalCom terminate a plan to merge their international Internet assets to create a new broadband company.

    Excite@Home and UnitedGlobalCom, a European cable operator, Monday scrapped a proposed deal to merge their international Internet assets to create a new broadband company, Excite Chello.

    Citing "market conditions," UnitedGlobalCom, or United Group, sought alternatives to the terms of the original deal with Excite@Home, which was announced in July. But after a new agreement could not be reached, Excite@Home terminated the deal Monday.

    Excite@Home is the world's largest broadband Net access provider with more than 2.3 million customers and strong international properties, but has seen its stock price plummet over the past 18 months.

    United Group, which owns UPC, the parent company of European broadband Net access provider Chello, may have balked at the declining value of its stake in Excite@Home and sought renewed terms, analysts said.

    "Obviously they wanted to revisit the terms, and basically Excite@Home was unwilling to proceed and walked away from the deal," said Dylan Brooks, an industry analyst at Jupiter Media Metrix, a market research firm. "They went from expecting this blockbuster IPO to looking at something that sucks."

    United Group and Excite@Home continued to consider alternative proposals, according to the companies. But apparently United Group's proposals were unfavorable for Excite@Home.

    "We did not find these alternative proposals attractive from a shareholder perspective," Excite@Home chief financial officer Mark McEachen said on a conference call. "We believe we have made the appropriate decision for our shareholders."

    Excluding its strong Canadian partnerships, Excite@Home has international broadband properties in the Netherlands, Japan, Germany and Australia and served 175,000 customers outside of North America at the end of the third quarter. The company also operates versions of its Excite.com Internet portal in 15 nations.

    The company has made international expansion one of three key goals. But the complex nature of the United Group deal "could have risked slowing down our international expansion," McEachen said.

    There are no breakup fees or other payments due to either company, and Excite@Home is free to consider other deals in the future, though executives said they are not compelled to rush out seeking a new partner. "We don't feel any pressure whatsoever to go out and do another deal," McEachen said.

    Still, although Excite@Home still has a significant stable of overseas properties, analysts say the failure of the United Group deal is a significant setback.

    "It's a pretty major blow to their global ambitions. Without the merger with Chello, they're likely to play second fiddle as a broadband ISP to Chello in Europe and have to fight with others elsewhere," Brooks said. "Instead of getting a very strong partner, they keep a formidable competitor.

    "Excite@Home has some strong international assets, but it's still a small fraction of the footprint they have here in North America and totally disproportionate to the number of Excite properties they have overseas," he said. "Right now they're faced with having an international strategy that depends mostly on the portal side," and not broadband connections.

    Excite@Home executives remain positive on the international market and believe the company can be a leader overseas. Executives said they are "comfortable" with existing projections for a fourth-quarter loss of between 8 cents and 10 cents per share and year-end subscriber totals of 2.9 million to 3 million broadband customers, which include overseas totals but which were not banking on Chello subscribers.

    Stock in Excite@Home fell more than 5 percent Monday to $5.88 but bounced back somewhat in after-hours trading. Excite@Home has traded as high as $53.25 and as low as $5.50 in the past year.