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AT&T to aid Excite?
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August 31, 2001: 4:57 p.m. ET
High-speed Internet service company won't meet $50 million loan deadline
By Staff Writer Luisa Beltran
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NEW YORK (CNNfn) - ExciteAtHome will not be repaying a $50 million loan to an investor group but a source close to the situation told CNNfn.com Friday that AT&T Corp. may yet step in to assist the company in some capacity.
Despite a possible rescue from AT&T, which already owns a controlling stake, more bad news came Friday for ExciteAtHome: cable TV companies Cox Communications and Comcast Corp. each said they will not renew their contracts with the high-speed Internet service provider.
Redwood City, Calif.-based ExciteAtHome (ATHM: down $0.10 to $0.42, Research, Estimates), a high-speed Internet service and content provider, will be not meeting its deadline to pay half of a $100 million loan to Promethean Investment Group LLC, Excite spokeswoman Stephanie Xavier told CNNfn. Earlier this week, Promethean demanded that Excite pay half of the loan by Friday.
Excite and New York-based Promethean are continuing discussions, both firms said. "Promethean is having substantive talks with Excite and its board," a Promethean spokesman said, who was unaware that Excite would not meet the Friday deadline. "We are evaluating the situation."
For its part, Excite wants more information. "We don't see the merit in this call for the loan," the Excite spokeswoman said. "We just want to find out more about what happened."
Excite's stock has dropped 98 percent from its 52-week high of $18.56. The stock is now trading at less than $1, putting it in danger of Nasdaq delisting. Excite shares dropped 19 percent on Friday to close at 42 cents.
An AT&T lifeline?
Press reports have said that AT&T may put up more money, or that an outside party may provide a lifeline for the high Internet provider. However, bankruptcy is a looming possibility.
AT&T Corp. (T: up $0.29 to $19.04, Research, Estimates), which holds a 23 percent stake in Excite and has a 74 percent voting stake, remained mum Friday.
"AT&T Broadband remains committed to providing customers with uninterrupted high-speed cable now and in the future," a spokeswoman said.
The nation's No.1 phone company may still come to Excite's aid. But AT&T is not prepared to just give Excite $100 million at the present time to keep the struggling high-speed provider afloat, a source familiar with situation told CNNfn.com. During the second quarter, Excite received $185 in financing; $85 million came from AT&T and Promethean followed up with $100 million.
AT&T may provide some future financing if Excite chooses to reorganize and also finds a third-party investor, the source said.
Excite could also choose to file for Chapter 11 bankruptcy protection and reorganize. The struggling company would then need a "debtor in possession" that would keep the company afloat as it revamps. In this scenario, AT&T also could provide the much-needed cash.
However, if Excite chooses to sell some assets, as part of a bankruptcy plan, AT&T may opt to buy the access business of Excite, the unit that provides high-speed Internet service. The company's media business, which includes the Excite.com Web portal, has been a drag on earnings in recent quarters amid a sharp slowdown in the online advertising market.
"This is a sustainable business and the media business is an albatross around Excite's neck," the source said.
ExciteAtHome has been trying to sell off its Excite.com portal and other portions of the media business as one of its options to deal with a cash crunch, but has yet to find a buyer.
Excite could also choose to merge with another company and AT&T would not intrude, the source said. However, these situations are not the only scenarios available to Excite and other possible circumstances could arise.
But AT&T will likely allow Excite to file for bankruptcy where it could then negotiate with bondholders to restructure the company's debt, said analyst Drake Johnstone, of Davenport & Co.
"In bankruptcy court, note holders would likely throw in the towel and get 15 cents on the dollar," he said. "If AT&T tries to buy [access] now, note holders will expect to get most of their money. They're better off waiting for bankruptcy."
Cox and Comcast not renewing
Bad news continues to mount for Excite, which has warned it may not have enough cash to last the year, especially if its stock is delisted.
Meanwhile, Excite said Cox Communications (COX: up $0.33 to $39.76, Research, Estimates) and Comcast Corp. (CMCSK: up $0.23 to $36.63, Research, Estimates) said they have chosen not to renew existing distribution pacts set to end next June. Excite is trying to strike a new contract, featuring different terms and conditions.
"[Excite] is continuing to engage in discussions with Cox and Comcast concerning alternative arrangements for the continued provision of the company's broadband Internet service to subscribers of Cox and Comcast cable systems," Excite said in a statement Friday.
However, Excite added that there can be no assurance that discussions will result in an alternative commercial arrangement.
Cox Communications said it may strike another deal with Excite, a company spokeswoman said. Excite's contract with Cox was exclusive until the end of the year, at which time Cox would open it up to other providers. In June, Cox announced it was in trials with Earthlink and AOL Time Warner.
Cox, which owns 7 percent of Excite, could still work out a new agreement with the high-speed Internet service provider or choose another company. In the meantime, Cox will take up many of Excite's responsibilities and take more control, the spokeswoman said.
"It's too early to tell how it will all work out," Cox spokeswoman Laura Oberhelman said.
But loss of Cox and Comcast would devastate Excite, Davenport's Johnstone said.
Combined Comcast and Cox had 1.35 million high-speed subscribers in second quarter, which represents $145 million in revenue for Excite, Johnstone said. The Comcast and Cox subscribers amount to 40 percent of Excite's access revenue and 25 percent of overall company revenue.
"If that revenue stream goes away this would have a huge impact," Johnstone said. "Access actually generates positive cash flow. Excite would have a tough time sustaining operations going forward."
If Excite does file for bankruptcy, Cox and Comcast will probably look to other providers like AOL Time Warner, parent of CNNfn.com, which operates broadband service provider Road Runner, Johnstone said.
Cox and Comcast may also turn to Qwest Communications International (Q: up $0.85 to $21.50, Research, Estimates) and WorldCom Inc. (WCOM: down $0.02 to $12.86, Research, Estimates), but not Earthlink Inc. (ELNK: down $0.57 to $13.51, Research, Estimates), which is not focused on high-speed Internet access, he said.
Comcast could not be reached for comment.
A white knight with a twist
Excite also said Friday that it will look to hire an investment banking firm to explore other options to strengthen its finances. On Aug. 22, auditors Ernst & Young expressed concern regarding the company's ability to stay in business. On the same day, Excite replaced Ernst & Young PricewaterhouseCoopers.
A white knight may yet surface. Former Clinton White House Chief of Staff Thomas "Mack" McLarty may provide a lifeline. McLarty owns a consulting firm called Kissinger McLarty Associates. McLarty is considering making an investment in Excite, on his own behalf, and not as part of McLarty Associates, a source familiar with the situation said.
"There will be other suitors coming forward," a person familiar with the situation at Excite told CNNfn.com.
Kissinger McLarty declined comment. 
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