Fomented in the disillusionment of online stock message boards, another revolt is brewing against AT&T's proposed $307 million purchase of broadband Net company Excite@Home.
Led in large part by Bob Garrity, one of the first 40 employees at the high-speed cable network, a group of hundreds of individual shareholders is adding its weight to the forces trying to undo AT&T's bid for Excite@Home's cable business.
Garrity knows as much about Excite@Home's broadband operations as almost anybody; he literally wrote the manual for the company's cable service installation process while serving as cable operations manager in the early days, when @Home was a standalone company. The broadband network alone, shorn of the money-losing Excite portal, is worth far more than what AT&T has offered and the board of Excite@Home has accepted for it, he says.
Like Excite@Home's bondholders, with whom they hope to make common cause, Garrity and the other shareholders say the broadband company has been little more than a financial puppet of AT&T for the past year. Ma Bell has forced Excite@Home's management into bankruptcy and is picking up the best assets for pennies on the dollar, they charge.
"It's a smoke screen," said Garrity, who now works with a nonprofit and manages his own investments. Excite@Home is "using the Internet meltdown to say 'We're just another failed company.'"
Armed with the righteous bitterness of shareholders who have seen their investments evaporate, inside knowledge of the company's operation, and an attorney funded by donations, the group is drafting its own reorganization plan for the company. Its basic outline involves jettisoning Excite@Home's current management, declaring that AT&T has not met fiduciary duties, and relaunching the cable access business as an independent operation.
They've got a few legal hurdles to get over first, not least of which is being recognized as a party with any kind of official standing by the court. That isn't stopping the organizing effort, which has brought 220 people onboard in the weeks since the bankruptcy filing, finding people largely through postings on Yahoo and Raging Bull stock message boards.
AT&T and Excite@Home each declined to comment on the controversy over the bankruptcy plan.
AT&T raises eyebrows
Excite@Home filed for bankruptcy Oct. 1. After the company's repeated warnings about cash flow difficulties, the filing came as a surprise to few. But the simultaneous bid by AT&T to acquire the company's cable Internet access business for $307 million raised a few eyebrows.
The first serious campaign to undo the deal came from the company's long-term bondholders, who are collectively owed about $750 million. Weeks of quiet complaints culminated last Friday, when a committee of bondholders filed official opposition to the sale in San Francisco federal bankruptcy court.
Bondholders are seeking at minimum enough to cover the company's outstanding debt, which is at least $1.3 billion. They've said they will ask Excite@Home to shut down service altogether if AT&T doesn't raise its bid or provide enough money to pay the company's debts.
The opposition to the deal does have hurdles, however. No other source has stepped forward to offer an alternative to AT&T's $307 million bid. A bankruptcy court judge could declare that bid too low and order a different reorganization plan, but there is little market evidence that any outside party values the business any more than what AT&T has said it will pay.
Nevertheless, the last three weeks have given some illuminating glimpses at the finances underlying the company's operations.
Strapped for cash after agreeing to lock up $100 million of its remaining funds, Excite@Home stopped signing up new customers a few weeks ago. That act, which struck directly at the big cable companies' market campaigns and customer relationships, forced AT&T, Cox Communications and Comcast to scramble into negotiations.
As a result, Excite@Home is getting more money for its services to the cable companies and is "cash-flow neutral" for the first time with respect to this side of its Net access business, Excite@Home attorney Suzzanne Uhland said in court last Friday.
Where cable partners had previously paid 35 percent of their subscribers' fees back to Excite@Home--about $12 to $15 a month per subscriber--Excite@Home is now getting $20 a month per subscriber. In addition, the cable companies agreed to pay bills owed to the cable Net company totaling more than $47 million, attorneys said in court. That has put the struggling company on slightly more stable footing, they said.
Could it be profitable?
Those quick moves taken by the cable companies to restart new subscriber sign-ups, and the amount of money raised by Excite@Home in the space of just a few weeks, has bondholders and shareholders convinced that the company could be a profitable business if only AT&T and management would allow it.
"We feel that if the current management was thrown out, and the agreements already in place were enforced, then it could be a profitable company," Garrity said. "We want to get this word out to the bankruptcy court."
From education to a successful reorganization is a longer step. The shareholders group hopes to convince bondholders to take a relatively small amount of cash and then a new equity stake in a revitalized Excite@Home, much as happened in the recent Covad reorganization.
But that's an unlikely scenario, since bondholders and shareholders have an inherent conflict of interest in a bankruptcy claim, one bondholder source noted.
Other flash points for Excite@Home also continue to develop. Many of the 500 employees laid off in the most recent round have found that their last paycheck and vacation paychecks bounced as the company filed for bankruptcy. Former employees trying to figure out what happened have been told that their accrued vacation will be capped at two weeks if they ever get the funds--a matter of some question, since they have been thrown into the pool of general creditors, they have been told.
"This proposal seems to conflict with California labor law, so there is a lot of confusion, disagreement and frustration across the board," Andrew Reback, a former senior director of product management, wrote in an e-mail to CNET News.com.