News

Allen Buys Portal for Charter

3/21/1999 7:00 PM Eastern

Paul Allen's vision of a "Wired World" moved
another step closer to reality with his pending $750 million purchase of Seattle-based
Internet portal Go2Net Inc. But the burgeoning stock
price of the Internet company, fueled mainly by the announcement, could end up changing
the makeup of the deal.

Whatever the outcome, it is not expected to affect
Allen's plans for the company, which include making it the portal of choice for
Internet offerings from its cable property, Charter Communications.

Go2Net is expected to be the portal for Charter's
Internet services, which range from its "Charter Pipeline," a cable-modem-based
service available in 13 of its systems, to WorldGate Communications Inc., a
television-based Internet-access system available in four of the company's cable
operations.

Charter also offers At Home Corp.'s @Home Network
cable-modem service in some systems formerly owned by Marcus Cable and InterMedia
Partners.

According to the agreement, Allen's Vulcan Ventures
Inc. purchased $165 million worth of Go2Net's preferred shares March 15, and it will
purchase a total of $300 million in preferred shares.

In addition, the company will buy another 1.4 million
shares from Go2Net insiders, as well as 3.6 million shares from investors via a
$90-per-share tender offer.

That tender offer may end up ultimately transforming the
deal. If investors tender all of their shares, Allen and Vulcan will control about 54
percent of Go2Net stock.

But if investors decide to hold onto their stock -- which
seems likely, by the looks of things -- Allen and Vulcan will control only about 40
percent of the Internet company's shares, making them Go2Net's largest
shareholder, but stopping short of a controlling position.

Go2Net stock, which was trading at about $87 per share
before the Vulcan deal was announced, has climbed steadily since the news got out.

On the day of the deal -- Monday, March 15 -- Go2Net stock
rose by $26.375 per share to $113.375. It stood at $120 last Friday morning. Some analysts
believe that if the stock holds its current position, it is unlikely that investors will
tender their shares.

Portals have been hot properties for cable companies of
late, particularly because they provide unique entry points for high-speed Internet
offerings and a bevy of loyal users.

Go2Net, for example, has about 1.5 million unique users per
day on its Web site. The company's site also has such popular services as
"Silicon Investor," a forum for investors in technology stocks, and
"Metacrawler," a popular search engine that it owns.

Just how Go2Net will fit in with Charter's other
Internet services remains to be seen.

Randall Gort, vice president of corporate affairs for
WorldGate, said his company has been working with Charter to develop a uniform user
interface for its Internet service. He added that the Go2Net acquisition could be a part
of that interface.

Gort said the mix of television-based and
personal-computer-based Internet services could work hand-in-hand within Charter systems.

"That's not a problem with us," Gort said.
"We see these as complementary services. Obviously, if you want to do an extensive
data transfer, you're not going to do it over your TV."

Although the deal seems to be similar to the $6.7 billion
mega-merger between At Home and Excite Inc., the two also have their differences.

While At Home, the Redwood City, Calif.-based
cable-modem-service provider, has concentrated on high-speed access to the PC, that is not
Allen's focus. Almost from the get-go, Allen's Wired World philosophy has
focused on the convergence of the Internet and the TV set.

"@Home is focused on broadband to the PC in
relationships with cable operators," said William Savoy, president of Vulcan, in a
conference call with media and analysts. "We think that the playing field is a little
larger than the PC. The cable plant, when connected to digital set-top boxes, is a new
platform. We are as focused on that as we are on the PC.

"This [deal] is a critical piece of the glue that is
going to tie together the Wired World for us," Savoy added. "We think that it is
important that the consumer be given the opportunity to use the [television] remote
[control] for more than just changing channels."

But what would that capability do to Charter's
arrangement with @Home, which currently offers its high-speed Internet service through
some former Marcus and InterMedia systems? Apparently, it won't do much.

Matt Wolfrom, a spokesman for @Home, said delivering
interactivity to the set-top box has been part of his company's strategy all along.

"We don't see the TV replacing the PC: We see
them complementing each other," Wolfrom said. "We've always been about
that. We've always been about multiple devices into the home."

He added that the Go2Net deal will help the industry as a
whole by encouraging more companies to deploy broadband services, including the regional
Bell operating companies.

"That will ultimately help the consumer and help
us," Wolfrom said. "A rising tide floats all boats."

But one analyst, who requested anonymity, said the Go2Net
deal is further proof that Allen wants to go his own way in the high-speed Internet arena.

"Paul Allen is going to continue to do his own
thing," the analyst said. "He's not a member of the cable club."

Even if Allen does decide to steer Charter in its own
direction regarding high-speed Internet services, that will have no affect on its @Home
agreements. And any high-speed service that Charter would create for its own systems would
be dwarfed by the two largest cable-modem services -- @Home and Road Runner.

"There is certainly no way that [Allen] could build up
anything approaching Road Runner's homes passed, let alone @Home's," the
analyst said. "There are just going to be guys out there that want to go their own
way."

Vulcan purchased St. Louis-based Charter last year in a
deal worth about $4.5 billion. The company has been on an acquisition tear of late,
forming deals that will bring about 1 million additional subscribers to the fold at a cost
of about $3.9 billion.

September