AT & T Corp. completed its deal to increase its voting control over Excite@Home Corp. last week-a move some analysts called the final step in solidifying AT & T's strategy to transform itself into a broadband-data company.
The biggest piece of that strategy-boosting the long-distance phone business with the addition of widespread local telephony-is entering a critical phase.
AT & T has been scrambling to meet its year-end goal of 500,000 cable-telephony customers, from 225,000 at present, and expected to start a special promotion in several large cities last Friday, offering up to five free months of local and long-distance telephone service.
"This is the final step in that strategy," Crowell, Weedon & Co. analyst Douglas Christopher said of the Excite@Home deal. "It completes their package of services."
The deal-which raised AT & T's voting control over Excite@Home to 74 percent from 56 percent-has been in the works since March. AT & T was able to close the deal more than one month ahead of schedule, though.
The move gave a lift to AT & T shares, which have lost more than 40 percent of their value since the beginning of the year. The company's share price gained $1.56 to close at $31.81 last Tuesday. The stock added another 43 cents in early trading the following day.
Excite@Home shares rose 25 cents each to $14.19 last Tuesday and climbed another 12 cents to $14.31 per share early Aug. 30.
The gains came despite AT & T's disclosure that adding Excite@Home's results would trim previously forecast third-quarter earnings by 5 cents per share. Analysts had expected the Excite@Home deal to impact earnings, so AT & T's restatement came as no surprise.
AT & T also said earnings for the year would dip by between 1 cent and 2 cents per share, which was expected, as well. "We view this as a nonevent," Salomon Smith Barney analyst Jack Grubman wrote in a research report.
Investors apparently also shrugged off news that credit rater Standard & Poor's Corp. put AT & T and its units on "CreditWatch" with negative implications. S & P has concerns about AT & T's "cable-television strategy, long-term prospects for its core long-distance business, a more aggressive wireless-expansion plan and its overall strategic direction."
AT & T said it was able to speed up closing the Excite@Home deal after the data provider settled its differences with Cablevision Systems Corp. Cablevision recently agreed to drop its suit attempting to block the AT & T deal, and continues to negotiate with Excite@Home.
Excite@Home will convert about 50 million shares of AT & T's series-A stock into series-B shares that have 10 votes each. AT & T will also increase its economic interest in Excite@Home from 24 percent to 25 percent.
AT & T gets the right to buy an additional 25 million series-A and 25 million series-B shares in Excite@Home.
Excite@Home retains exclusivity agreements with cable partners AT & T, Comcast Corp. and Cox Communications Inc. until they expire, as scheduled, in 2002. AT & T also extended its nonexclusive agreement with Excite@Home until 2008.
Cox and Comcast agreed to extend their nonexclusive relationships until 2006.
"This paves the way for continued broadband expansion," Excite@Home chairman and CEO George Bell said in a prepared statement. "We are more committed than ever to using our broadband network for the consumer and commercial deployment of broadband services. With these deals firmly in place, we are primed to take advantage of each and every broadband opportunity that is presented."
Excite@Home also named six new directors, all from AT & T: chairman C. Michael Armstrong, AT & T Broadband CEO Dan Somers, AT & T Wireless Services president Mohan Gyani, executive vice president of corporate strategy and business development John Petrillo, AT & T Network Services president Frank Ianna and AT & T Business Services president Rick Roscitt.
Also on the board are Kleiner Perkins Caufield & Byers general partner Will Hearst, Kleiner Perkins partner and former Excite@Home chairman Tom Jermoluk and Rogers Communications Inc. CEO Ted Rogers.
Comcast president Brian Roberts, Cox executive vice president of business development David Woodrow and Liberty Media Group chairman John Malone resigned their seats.