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Excite@Home extends cable pacts, AT&T boosts control

Excite@Home (Nasdaq: ATHM) said Wednesday it extended its distribution pacts with its key cable partners and gave AT&T (NYSE: T) voting control of the company. In addition, Excite@Home said it scrapped plans to issue a tracking stock for its media assets.

Under the multifaceted deal, Excite@Home will have access to AT&T's cable pipes through 2008. Excite@Home also extended its distribution pacts with Comcast Corp. and Cox Communications through 2006. However, Comcast and Cox can exit their distribution pacts as early as June 2001.

The distribution deals are crucial for Excite@Home, which will have to battle America Online (NYSE: AOL), which bought Time Warner (NYSE: TWX) for cable and broadband access.

Excite@Home: Ready to rocket?

After today's wheeling and dealing, expected to close in the third quarter, Comcast and Cox will give up veto rights and leave Excite@Home's board of directors. Excite@Home's corporate governance was messy to say the least. The broadband service provider often had to get all of its cable partners to agree before making a move.

Once the deals close, Excite@Home's board will be much easier to understand -- AT&T runs the show. AT&T, which will have 74 percent voting power, will have the right to elect the majority of directors. AT&T now has a 56 percent voting interest.

An Excite@Home spokeswoman said the company will remain independent and report its earnings separately. AT&T, however, will also lump Excite@Home's results in with its earnings.

AT&T's revenue in 2000 will jump $400 million with Excite@Home in the fold. AT&T said the deal will have no significant impact on cash earnings. An AT&T spokeswoman said AT&T has to report Excite@Home's results also because it is material under accounting rules.

Distribution pact details

AT&T still plans to open up its cable pipes to third party Internet service providers in June 2002, but Excite@Home will be featured on AT&T's start page through 2008. Excite@Home said it will work with AT&T to deliver services to consumers via advanced TV, narrowband initiatives and, subject to negotiation with AT&T Wireless Group, wireless services.

Once AT&T opens up its cable pipes to other ISPs, Excite@Home will "work with AT&T to provide connectivity services."

Excite@Home's deals with Comcast and Cox are similar, but can end quickly. Cox and Comcast will open their cable systems to other parties in June 2002, but feature Excite@Home through 2006. If Comcast and Cox give up warrants in Excite@Home, both cable companies can end the exclusivity arrangements and end the distribution pacts as early as June 2001.

The financial nitty gritty

To allow Comcast and Cox an exit strategy, AT&T has agreed to give the two cable partners the right to sell their shares in Excite@Home to AT&T for a minimum price of $48 a share any time between January 1, 2001, and June 4, 2002.

Comcast and Cox each own about 30 million Excite@Home shares, or 8 percent, of the company. AT&T's purchase obligation is limited to an aggregate value of $3 billion. If Excite@Home's average share price exceeds $48 for 15 days before and 15 days after Comcast or Cox exercises their right to sell, they will receive the higher price per share and the number of shares AT&T purchases will be reduced. Comcast and Cox have the right to take payment in cash or in shares of AT&T stock.

In addition, Comcast and Cox will each receive new warrants to purchase two Series A shares for each home its system passes. These warrants will vest in installments every six months beginning in June, 2001, and be fully vested in June, 2006, if Comcast and Cox extend their non-exclusive distribution agreements.

As for AT&T deal, Excite@Home agreed to convert 50 million of AT&T's Series A shares into Series B shares, each of which has 10 votes. In connection with the new distribution agreements through 2008, AT&T will be allowed to purchase 25 million Series A shares and 25 million Series B shares. AT&T will have, on a fully diluted basis, 25 percent of the economic interest in Excite@Home and 74 percent of the voting interest.

AT&T said Excite@Home won't hurt cash earnings. Including amortization of goodwill and other non-cash charges, however, Excite@Home will cut 2000 operational earnings per share by about 20 cents. Reported earnings per share for 2000 are expected to be about 5 cents a share lower.

According to CEO George Bell, the deals today render plans for a media tracking stock moot. "Through the new long-term extensions of our cable agreements, we have achieved platform and content alignment with our partners," said Bell, in a statement. "Given this clarity, we believe we are better served with a single unified company."