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Strategic moves may help Excite@Home stock

Following Excite@Home's plans to issue a tracking stock for its content and media business, analysts question whether the move will help boost the Net-over-cable company's sinking stock.

Following Excite@Home's plans to issue a tracking stock for its content and media business, analysts question whether the move will help boost the Net-over-cable company's sinking stock.

The closely watched firm has faced a number of challenges over the past few months, including scrutiny of its blockbuster purchase of Web portal Excite. Some industry sources and media reports had suggested that Excite might be for sale only months after the former @Home Network acquired it.

Uncertainty over the company's strategic direction has caused Excite@Home's stock price to stagnate. Analysts at the time of the deal questioned whether the company's plan to offer Web content in addition to high-speed Net access really meshed with the interests of its major stakeholders.

Analysts generally believe the decision to operate the media and access parts of Excite@Home's business more independently is a good strategic move that will give the divisions increased autonomy.

"One thing it should do is give Excite@Home and its board a little more flexibility to act on their own when it comes to capital investments and things like that," Cahners In-Stat Group analyst Mike Paxton said. Yet he added that the tracking stock can't be seen as a complete solution for the service's wide-ranging problems.

"I don't think it's a solution to a lot of the issues facing AT&T and Excite@Home, but it can't hurt the situation and it really can't hurt the shareholders," Paxton said. "There's not much of a downside, I just don't think there's a lot of upside either."

Excite@Home hopes that its decision to operate its content and media arms separately will put to rest Wall Street speculation that it plans to sell one of the units. The move also signals a strategic agreement among Excite@Home executives and its cable partners such as AT&T, Cox Communications and Comcast, after continued debates over the firm's future.

"It allows us to go back to running the company," Excite@Home chief executive Tom Jermoluk said in an interview Sunday. "Adding subscribers and scaling the business, that's what I want to turn my attention to, as opposed to going off and having more and more discussions about the strategic alignment of the company."

In a report released today, Merrill Lynch equity analyst Henry Blodget wrote that separating the content and access sides of Excite@Home's business "makes sense." Yet Blodget doesn't expect the new tracking stock to increase the company's stock price long term.

"We do not…think that a tracker will necessarily boost the valuation of the overall entity, as tracking stocks often trade at a discount to direct ownership in the specified operations," he wrote.

See newsmaker: Feeling @Home with CEO Tom
Jermoluk Stock in Excite@Home gained nearly 11 percent to 57 in trading today. Shares have traded as high as 99 and as low as 25.88 in the past year.

Excite@Home also still faces an impending deadline of 2002--when some of its exclusive contracts with cable operators expire. The contracts keep operators from offering high-speed Net access with other high-speed providers.

It is too early to tell whether the new tracking stock will affect future negotiations about post-2002 partnerships, but it could give Excite@Home more leverage with the cable companies, analysts said.

"Excite@Home could lock them in by giving them a bigger piece of ownership or greater control of the media side of the business," Jupiter Communications analyst David Card said.

Yet other analysts said that the company's content and Net access arms will still face a number of conflicts and strategic questions.

"I still think that the Excite portal has been distracted by @Home," Card said.

Still, the move should give investors a chance to independently value the company's media assets and hold that half of the business accountable.

"Since the broadband subscriber and the media businesses have very different drivers and margin levels, we believe the tracking stock will increase investor visibility into the operating performance of the company," Bear Sterns Internet analyst Scott Ehrens wrote in a research report today.

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