Excite@Home Dumps Chello
Back in July, Excite@Home, UPC (chello broadband's parent company), and United Global Com, which owns a 51 percent stake in UPC, were tallying up their prospective windfalls and looking ahead to the Excite chello IPO. The IPO for the newly formed, merged company, was originally scheduled to occur about now, but instead Excite@Home (www.excite@home.com) announced that it is pulling out of the pending merger deal citing market conditions.
Both Excite and UPC's stock has declined in value significantly since the July agreement, yet the financial woes of companies focusing on the area of high-speed access are not isolated to these two companies. In the United States, Verizon also recently announced that it was pulling out of its proposed acquisition of NorthPoint DSL.
Originally, Excite intended to merge its European and Asia-Pacific operations with chello (www.chello.com) to create Excite chello. The deal was crafted to provide Excite with an expanded international footprint, and an opportunity to extend its international exposure by bundling its portal with its high-speed service throughout Europe. The failure of the merger to go through, leaves Excite with chello as a formidable competitor throughout Europe, instead of a powerful ally.
Excite points the finger at United Group, stating that it recently indicated that it was unable to move forward with the Excite chello transaction as planned, and asked Excite@Home to consider various alternative transaction proposals. Excite states, however, that after further discussions, it decided to scrap the deal in the best interest of its shareholders. UPC released a statement indicating similar sentiments and stated that it would move on to focus on its core business, with the possibility of a merger of UPC's media group and chello's operations.
Both Excite@Home and UPC had pledged to provide 100 million Euros in funding, to the new Excite chello, in order to fund the IPO. The loss of Excite's contribution to chello's IPO has left many analysts questioning the stability of chello's possible IPO. This announcement marks the second time that chello has canceled its IPO citing "market conditions".
Both companies have stated that there are no financial penalties for terminating the agreement.
The Verizon Debacle and Further Financial Woes for DSLThe announcement that Excite@Home and chello are calling it quits, comes right on the heels of a similar announcement by Verizon (www.verizon.com) regarding the merger of its high-speed DSL business with NorthPoint DSL (www.northpoint.net). The two companies originally agreed to combine their DSL businesses into one national broadband company in August, and in this agreement Verizon agreed to provide $200 million in funding to NorthPoint.
NorthPoint's stock has steadily declined since August, trading below a dollar after the announcment of Verizon's withdrawal. NorthPoint indicated just before the Verizon announcement, that it was revising its third quarter earnings down from $30 million to $24 million, based on the fact that it has decided not to recognize revenue from certain sales, which increases its operating loss by $6 million.
At the time NorthPoint announced its revised, lower earnings, NorthPoint Communications president and CEO, Liz Fetter, stated "These recent events confirm the validity of our decision to find a strategic partner like Verizon with a vigorous consumer channel." Now that Verizon has withdrawn, Fetter is considering legal action. Covad also has reported several ISP's that were unable to pay its debt for high-speed services and has laid off 13 percent of its staff as a result, and in other DSL woes -- PSInet is considering staking a for sale sign out front, due in part to delinquent ISP payments, also.