Nearly four years after its demise, Excite@Home Corp. has settled with its largest shareholder AT&T Corp. in an agreement that will pump about $400 million into a trust set up for bondholders of the defunct high-speed Internet service provider after it filed for bankruptcy protection in September 2001.
AT&T agreed to pay about $340 million. The other $60 million came from funds previously held in reserve for the bankruptcy.
The deal came a day before the trust was scheduled to begin a two-month trial in state Superior Court in San Mateo, Calif., against Excite@Home’s largest shareholders — AT&T, Comcast Corp. and Cox Communications Inc.
Among the charges alleged in the lawsuit were that AT&T breached fiduciary duties it owed to Excite@Home and misappropriated the defunct ISP’s trade secrets in connection with the building of an AT&T high-speed network to replace Excite@Home’s network when the ISP filed for bankruptcy.
The settlement does not resolve other claims brought in federal court in New York by the trust against Comcast and Cox, mainly regarding transactions in March 2000 when Comcast and Cox sold their shares in Excite@Home to AT&T for $3 billion in AT&T stock. The bondholders claim those deals presented little or no benefit to Excite@Home.
In a statement, lawyers for the trust said they would continue to pursue those claims.
Comcast declined comment on the pending litigation, but said in its annual report filed in February it denied the claims of wrongdoing in the lawsuits and was vigorously defending those claims.
Cox officials did not return calls for comment.
Excite@Home was the main supplier of high-speed data service to cable operators in the infancy of the service. But as MSOs began to balk at the price of offering the service and as their own networks became capable of handling high-speed data traffic, Excite@Home’s fortunes waned.
Comcast, which bought AT&T Broadband in November 2002, agreed to put up half of AT&T’s settlement costs, or about $170 million. Comcast was contractually obligated to pay half of the settlement claims as part of its agreement to buy AT&T Broadband.
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Comcast said the payment will pare its first quarter net income by more than 50% to about $143 million. Comcast reported a profit of $313 million (14 cents per share) in the first quarter on April 28, before the settlement was announced.
AT&T bought a controlling interest in Excite@Home — increasing its voting control from 56% to 74% — in 2000 for $3 billion in AT&T stock. Excite@Home shareholders opposed the deal because it gave Comcast and Cox the option of dropping the service before its contracts were up. About a year after the deal was sealed, Excite@Home filed for bankruptcy.
While the dispute has been ongoing for almost four years, AT&T was motivated to settle the claim because it is in the process of being acquired by SBC Communications Corp. for $16 billion.