Hoping to rally investors who have deserted the stock in droves over the last year,
Wednesday announced a series of moves designed to clarify its relationships with major shareholders. But amid a red-screen day on the
, Wall Street investors -- usually big fans of concepts like "visibility" when it comes to the financial future -- merely applauded politely, until a late-day rally lifted the stock.
Under the terms of Wednesday's multifaceted deal,
solidifies its control of Excite@Home, which is the largest provider in the U.S. of high-speed Internet access to the home. Excite@Home is also rejiggering its longstanding deals with
in an attempt to smooth out its future after deals with the cable operators expire. Both Comcast and Cox are major shareholders in Excite@Home, as well as customers that market Excite@Home's broadband Internet service to their own cable TV subscribers.
The companies were hopeful that the announcement would clear up uncertainty looming over Excite@Home after the summer of 2002, when Excite@Home's agreements to exclusively provide the broadband data service marketed by Comcast, Cox and AT&T's cable systems is slated to expire. Investor concern that the company would be hurt by new competition in the marketplace, as well as uncertainty over AT&T's support for Excite@Home, have hurt the company's stock over the past year: Excite@Home shares hit 26 3/4 in the last month, more than 70% off a 52-week high of 99. In afternoon trading, the stock was up 3 1/2, or 10.2%, at 37 13/16, valuing the company at around $14.4 billion.
Just Can't Hide It
"We needed to figure out what would happen post-2002," says Mark Stevens, executive vice president-business development for Excite@Home. "It was time to get clarity."
Stevens acknowledges that uncertainty over the company's future has affected how Wall Street values the company. "It's very, very important to know there's not a single date at which things change," Stevens says. "It creates confusion in modeling and therefore valuation."
As part of the agreement, Cox and Comcast will give up seats that they have on Excite@Home's board, along with certain veto rights they have had over the company's operations. The idea, says Stevens, is to make the decision-making process at the company more nimble. "We need to move at Internet speed because all of our competitors are," he says. "It's easier to touch one base rather than three or four when you need to get a deal done over the weekend or over an evening."
Elsewhere in the deal, Excite@Home is extending its carriage agreements with AT&T to 2008, and with Cox and Comcast until 2006. Though Excite@Home will lose its exclusivity, it will contractually remain a prominent feature of the cable operators' broadband offerings, and the operators won't immediately be able to poach the Excite@Home customer base it has built up by 2002.
Both Cox and Comcast can break their exclusivity agreements, provided they pay a penalty, in 2001; they also have the right to sell their shares in Excite@Home to AT&T in a year-and-a-half window starting next year, should they want to extricate themselves from ownership of the company.
Tendrils of Attachment
Beyond AT&T's planned takeover of the board, other elements of the deal make it clear that the bonds are tightening between the phone company and the high-speed Internet service. Excite@Home has decided not to issue, as previously contemplated, a tracking stock covering its media assets. And Excite@Home says it will work with AT&T to deliver services to consumers via advanced TV, wireless and narrowband initiatives. That last agreement creates a new set of uncertainties for AT&T's
service in a broadband and wireless future -- uncertainties that AT&T CEO Michael Armstrong avoided clarifying in a conference call discussing the day's news.
One buy-side analyst, whose firm has been buying Excite@Home over the past few weeks, says the apparently stronger ties between AT&T and Excite@Home are a positive development for the Internet firm, given earlier rumors of talks between AT&T and
. Reports circulating last year indicated AT&T was negotiating a broadband deal with AOL -- a deal that would have slighted Excite@Home. Today's deal shows Armstrong is "pretty committed to going with @Home," says the analyst, who spoke on condition of anonymity. "It clarifies the situation, which was a big overhang for the stock."
The stock would be doing even better, the analyst says, were it not for the overall down performance of tech stocks on Wednesday. "The story is extremely undervalued if you do a sum-of-the-assets," says the analyst, who thinks the stock is worth 80.