AtHome Swallows Excite in $6.7 Billion Deal

Search engine Excite (Nasdaq: XCIT) will become the property of AtHome Corp. (ATHM), a high-speed Internet service provider, in a stock deal valued at $6.7 billion (US$), a sum far exceeding what AOL paid for Netscape, which was a “mere” $4.2 billion.

AtHome (aka @Home) primarily caters to television cable subscribers, opening the possibility of delivering combined TV/Internet programming that will probably include a large portion of Internet shopping.

Tom Jermoluk, chairman and CEO of @Home, was quoted by the press as saying, “We are merging with Excite not only for what they have achieved, but what we become together — the new media network for the 21st century.”

CNN reported that the deal with @Home took place after talks between Excite and Yahoo! broke down.

AT&T also emerges as a winner in this deal. The company will become a major shareholder of @Home, following AT&T’s pending acquisition of TCI, which owns @Home.

Excite/@Home Deal:Industry PerspectiveBy Dana Blankenhorn, ColumnistE-Commerce Times News that @Home will buy Excite Inc. for stock worth twice Excite’s recent price set a fire under Internet issues Tuesday.

What lesson does this hold for the industry?

First, Excite and @Home have the same parents, venture capitalists Kleiner Perkins Caufield & Byers. The two companies are based near each other in Silicon Valley. Once AT&T finishes swallowing TCI, it becomes the largest shareholder in @Home. By combining @Home with Excite, that stake is offset, so this could be just a survival tactic.

Still, with Netscape taken by America Online and Infoseek in the embrace of Disney, all portals are being pushed toward big media partnerships. NBC has Snap while CBS has huge profits from Marketwatch, and Fox chairman Rupert Murdoch says he’s waiting for a stock market crash before stepping in. Time Warner’s CNN sites, taken together, have the highest “ratings” of all Internet news sites. Viacom’s Nickelodeon and MTV are leading sites with young people. Meat space, in other words, already has its teeth into cyberspace – why not assume a swallow?

Thus we have the assumption a “portal shakeout” is imminent, that scale is needed to survive. AT&T’s moves, however, are based on the assumption it will be able to keep rival Internet Service Providers off its cable lines, so the monopoly card (and monopoly assumptions) are in play. Disney (Go.com) and General Electric (Snap) are learning just how expensive it is to build, and market, a viable portal site, so the real cost (and value) of such portals will soon be known.

Thus attention turns to Yahoo and Lycos, based not on their growth or potential earnings, but on the assumption they must do big deals to stay competitive. Will they buy (can Yahoo afford CBS?) or sell (might Lycos sell to Microsoft?).

Either way, Wall Street expects action, because it knows a hard truth, one you’ll learn when you go public. High stock prices are like big muscles. If you don’t use them, you lose them.