@Home buys Excite in $6.7 billion deal

The deal is likely to help cable solutions maintain the lead over digital subscriber line technology (DSL) services offered by telephone companies, while accelerating consolidation between portals and access providers, analysts said.

"Excite has captured the biggest prize with its @Home relationship," said Andrea Williams, an analyst at Volpe Brown Whelan. "As we have seen on the Internet, the first mover advantage is significant, and this positions Excite and @Home together as the leader in broadband features."

Investors pushed Excite 63 percent higher in today's trading to 110. The stock had traded as high as 95 and as low as 16.25 during the past 52 weeks. @Home climbed 13 percent to 115.375, still below its 52-week high of 126.75 but well above a low of 22.

On Friday, the last day of trading, shares of Excite closed up 3.65 percent at 67.5. Today's deal values Excite at about $106.27 per share--a premium of more than 90 percent on the company's $3.5 market value.

The agreement also represents one of the largest Internet mergers and comes less than two months after the world's largest Internet service provider, America Online, purchased Netscape Communications, the Web browser and enterprise software maker and Internet portal, for $4.2 billion.

The transaction, which is expected to close in about three months, has been approved by both companies' boards of directors but is still subject to approval by @Home and Excite stockholders, as well as necessary regulatory approvals.

"The deal will also have a major impact on the adoption of broadband and lower the cost of the adoption rate of broadband technology," said @Home CEO Tom Jermoluk. "It's a winning strategy."

Excite said it draws more than 17 million consumers monthly to its portal services. Still, the company faces stiff competition from portal leaders Yahoo and AOL.

Some of the near-term benefits for Excite include additional promotional dollars to build up traffic and its user base. Ultimately, this will get funneled to @Home as broadband grows, analysts said.

"Financially, it's a fairly straight deal," Jermoluk said today in a conference call with the press. "It is a big accelerant to our subscriber growth and media revenue, and accretive to the bottom line."

Jermoluk added that the merged company will be immediately accretive to earnings, and 15 to 20 percent accretive by 2001-2002. He also forecast that the merged company would generate $2 billion in revenue by 2002.

"On the expense side, we'll continue to invest heavily in R&D to exploit our back-end technologies and the broadband distribution we have in order to stay the leader," Jermoluk said.

@Home also plans to up its sales and marketing efforts to build the @Home-Excite brand to increase its revenues. "We want to take advantage of Excite as a powerful consumer brand," Jermoluk said, hoping that Excite users will eventually migrate to @Home services.

The combined companies are hoping to accelerate broadband adoption by exposing the millions of Excite "narrowband" users to the benefits of a broadband platform.

Just last week, regional phone giant Bell Atlantic and AOL agreed to a deal to give AOL access to the Baby Bell's new high-speed Internet services in a stepped-up effort by AOL to position itself in the broadband world. The deal throws new weight behind the telephone company's push for DSL, which has lagged behind high-speed access via cable modems in the consumer market.

Yahoo and other portals are likely to also seek access partners from the telcos or cable sector.

"Still, right now cable solutions, and @Home in particular, have a 12- to 18-month lead over telco-based solutions," said Williams.

Some players open to partnerships include Road Runner, MediaOne, and unaffiliated cable companies. Telco players include several regional bells such as SBC Communications, as well as national companies such as MCI WorldCom.

Excite currently provides search engine services for AOL's Web site as well as other sites.

"We will continue all our relationships," said Excite chief executive George Bell. "We don't expect anything turning south as a result of the merger."

Jermoluk also offered an invitation to AOL to join @Home.

"I stand committed that if AOL cares to come to us and do a deal on commercially reasonable terms for integrating their offerings with us, we would be happy to discuss this," he said.

One of the biggest beneficiaries of the deal, however, is likely to be AT&T, the largest U.S. telecommunications company, which will take a controlling stake in @Home after AT&T completes its acquisition of cable operator Tele-Communications Incorporated, currently the largest shareholder in @Home. (See related story)

"On its own and when integrated with the broad range of AT&T communications services, the @Home and Excite combination will provide the consumer with a compelling interactive experience full of additional choice and opportunities," AT&T chief executive Michael Armstrong said in a statement.

With almost no duplication of function, the resulting company expects to add to its employee base to exploit new opportunities.

Bell will continue in his role as Excite becomes a subsidiary of @Home, but will report to Jermoluk. Bell will also join @Home's board of directors.