Warning: We're entering the Twilight Zone of Rumor City. Exercise extreme caution, if not quite abandon all hope, ye who enter here.

Quick take: It'd be a great deal for

Yahoo!

(YHOO)

. It wouldn't be such a hot deal for

Excite@Home

(ATHM) - Get Report

.

The possible acquisition of Excite@Home by Yahoo!, leaked in a

Business Week Online

story

last night, looked like it could pull at least some of the dot-com malaise out of the market this morning. But Excite@Home CEO

Tom Jermoluk's

right-hand man, President George Bell, issued a midmorning denial of any ongoing negotiations, taking the wind out of a rally in the stock and pushing Yahoo! down even further. Speaking from the

Robbie Stephens

tech conference in San Francisco, Bell acknowledged talks with Yahoo! and also

America Online

(AOL)

, but insisted those talks were strictly about content deals, not possible mergers.

And even if that's dissembling, and negotiating teams

have

been at work for weeks on this, there's many a slip twixt the leak and the lip. My sense is that Yahoo! and Excite@Home holders should sit still for a while, till more is known. Or maybe till less is confirmed.

So why would this be a great deal for Yahoo!? And what kind of price tag would attract you if you're an Excite@Home holder?

Yahoo! would take a major and growing competitor in the portal business off the table -- or at least, bring it under its control. It would get an organization committed right down to the DNA level to the Broadband Era, which Yahoo! has been fussing and worrying about internally for well over a year. It would get a flock of great partnerships:

Charles Schwab

(SCH)

,

Dell

(DELL) - Get Report

, many more. It would get a share, and a voice, in the growing

AT&T

(T) - Get Report

(which I am long) broadband network. (Though it would have to manage its interest in that network very carefully, undoubtedly spinning out the network chunk into some kind of parallel universe ... but that's just detail work in a potential acquisition on this scale.)

It would be a

very

good deal for Yahoo!, and one worth closing fast, before Yahoo!'s essential deal-making fuel -- its stock, its cheap currency -- falls any further. Yahoo! has slipped from 219 on April 5 to this morning's mid-120s, down 5% today and almost 50% since that April high. Down much more, and deals like this just aren't doable.

If this one is doable at all.

Because on Excite@Home's side, this doesn't look so good, absent a huge premium -- and no one I know on Wall Street or in the Valley is talking this morning about a giant premium over its current share price, in the mid-40s after a little bump this morning. Make that acquisition price 70-75 a share, Yahoo!, part stock and part cash, and you've got their interest, big-time. Make it, say, 50 a share, and you don't Excite them (sorry). But some of them will still do the deal at that level.

In the end, the biggest thing Yahoo! has going for it in this deal -- which, let me remind again, is still all rumor -- is Excite@Home's own depressed stock price, also down substantially since an early-April high. Excite@Home holders are wary, tired and bored. The stock that was going to go through the roof this year ... hasn't.

So if Yahoo! were to troll a nice price past them, it just might get enough Excite@Home holders to bite. One impediment: Only about 15% of Excite@Home's shares are held by easy-to-deal-with institutions. But that's deceptive: Big holdings by AT&T and partners constitute an awful lot of the rest of the 366 million shares outstanding. So Yahoo! would need to make its pitch to those companies compelling -- which it must do anyway, since those firms are likely to become Yahoo!'s

de facto

business partners in any postacquisition carve-up.

Why do I think this isn't such a hot deal on the Excite@Home side?

First, because I think the company is poised for much higher share prices, and much faster growth, over the next few years than its shareholders could ever achieve if it were submerged in Yahoo!. Yahoo!'s a great stock, and I have high expectations for it, too. But I think nearly every other possibility that's been suggested for maximizing Excite@Home's value -- principally, spinning it out to shareholders as a separate company -- is a better deal than a Yahoo! acquisition. (Indeed, it will be interesting to see if pressure from a failed, or retracted, or even denied, Yahoo! offer persuades AT&T and its partners in Excite@Home to finally move on such a value-enhancing spinout.)

Second, because this is not an intuitively obvious deal, with natural synergies. Excite@Home has strong properties, is an early leader in a market just about to -- but not quite yet -- explode. Excite@Home will not have much trouble attracting capital for expansion, given its market, history and relationships with AT&T. It doesn't

need

Yahoo!: It's just that simple.

Third, a merger would require a vast clean-up of overlapping operations, with much confusion over two powerful portals under one roof. What -- who? -- goes, and what -- who? -- stays? Consolidation can be very powerful in Web businesses, but not here. With this offer, Yahoo! is suggesting what I often call "2 + 2 = 3 Economics." Separately, I think these two companies are likelier to score something like 2 + 2 = 7+.

So ... will the deal go down? My gut says no, and the voice is pretty loud. Excite@Home CEO Jermoluk and board member

John Doerr

, of VC

Kleiner Perkins

fame, are reported by

Business Week Online

to be powerfully opposed to this deal. No wonder: Yahoo! would be snatching their baby, just before it leaps to stardom.

TJ is a powerful force, to put it mildly, especially in person. And Doerr brings credibility, influence, connections and immense persuasiveness to the table. That AT&T holds a major Excite@Home stake is a huge advantage, because in private sessions with AT&T's

Mike Armstrong

, they'd be likely to make exceedingly potent arguments against the deal. No AT&T and this deal doesn't go down.

Stay tuned. IF this deal is real, and IF Yahoo! presses forward, you'll see some impressive thrashing around in the weeks to come. But I think we're more likely to remember this as fizzle than as fireworks.

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long AT&T, although positions can change at any time. Seymour does not write about companies that are consulting clients of Seymour Group, or have been in recent years. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

jseymour@thestreet.com.

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