Excite@Home exhumed to sue cable firms for $600m
A lawsuit filed in Delaware last week names At Home Corp as the plaintiff, but is evidently the work of the terminal ISP's committee of unsecured bondholders. It claims a complex transaction in March 2000 "critically weakened" Excite@Home, while allowing Cox and Comcast to make huge profits from selling their stakes in the firm.
"The three controlling shareholders of ExciteAtHome - AT&T Corp, Cox and Comcast - each used their insider positions to force the company to enter into a series of convoluted and interconnected agreements... that benefited the controlling shareholders, but left ExciteAtHome critically weakened," the lawsuit said, according to Reuters.
At the time, Cox and Comcast together owned more that 10% of the company, and had an executive each on Excite@Home's board. AT&T also figured prominently on the board. The lawsuit alleges these privileged "insider" positions allowed the three companies to work out a deal that benefited them, but not Excite@Home.
A Cox spokesperson declined to comment but said: "We intend to vigorously defend ourselves." Comcast could not be reached for comment, but a regulatory filing made last week said: "Comcast believes this suit is without merit and intends to vigorously defend itself in the action." AT&T was not named as a defendant.
The transaction in question occurred the month before the dot-com bubble was well and truly bursting. Excite@Home extended its distribution deals with all three cable companies. Cox and Comcast both removed themselves from the Excite@Home board, and AT&T gained full voting control of the ISP and a majority on the board.
Excite@Home was to get its portal carried on AT&T's cable internet services until 2006 and on Cox and Comcast's until 2006, exclusively until 2002. The company would also get to sell its internet connectivity services to cable subscribers over the same periods. The ISP's bondholders now say that was insufficient consideration.
The deal also allowed Cox and Comcast to sell Excite@Home shares back to AT&T for $48 or a price calculated from the stock's recent performance at the time of the sale, whichever was higher. Excite@Home stock hadn't seen $48 since late 1999, and never saw it again, but AT&T was obliged to pay up anyway.
According to financial filings, Cox gained $307.4m and Comcast $293.3m from selling their Excite@Home stakes to ATT. The Excite@Home bondholders want this money to recoup some of the huge losses they made when the ISP folded without a buyer. Excite@Home is due to be liquidated shortly.