Call it pay-for-stay.

Exciting
Tracing Excite@Home's decline

AT&T

(T) - Get Report

announced Friday evening that it had renegotiated a costly deal with two major cable companies that hold shares of the AT&T-controlled Internet-over-cable operator

Excite@Home

(ATHM) - Get Report

.

Under the terms of the original agreement, reached in March 2000, AT&T had been obliged to buy shares in Excite@Home, as early as in January of this year, from two of the high-speed cable company's business partners: cable operators

Comcast

(CMCSK)

and

Cox Communications

(COX)

, each of which offers Excite@Home's service to its subscribers.

Unfortunately for AT&T, the price that it agreed last year to pay for these stakes was $48 a share. Excite@Home's shares closed Friday at $3.94, down 3 cents, and has traded no higher than $9.88 since the first of the year. In 1999 the stock traded as high as $94.

Because the cable operators owned some 60.4 million shares Excite@Home in total, AT&T would have ended up paying $2.9 billion for shares that were worth as little as $268 million in January, when the cable operators exercised their put options. Cox and Comcast had the choice of getting paid in cash or in AT&T stock; both had requested the stock.

As part of the renegotiated agreements that AT&T announced today, Cox and Comcast will hold onto their shares in Excite@Home -- but AT&T will give them shares in AT&T anyway.

Instead of exchanging 134 million AT&T shares for the cable operators' Excite@Home shares, AT&T will simply give 75 million shares to Cox and more than 80 million shares to Comcast. Though the revised agreement costs AT&T about 21 million additional shares -- worth about $464 million at Friday's closing price of $22.10 per share -- and get nothing in return, AT&T says in a statement that the changed deal results in a "substantial" tax benefit for the company.

The new deal appears to give Cox and Comcast incentive to ensure Excite@Home's future health and well-being, while rewarding them for agreeing to what turned out to be a rotten deal struck by AT&T, back when Excite@Home shares were trading for more than $34. At the time, the transaction was part of a move by AT&T to firm up its control of Excite@Home.

AT&T says the transactions are not expected to "significantly" affect its net income and earnings per share, and will not change the previously announced second-quarter earnings guidance provided to investors.