Excite@Home, Chello to Create Broadband Powerhouse

LONDON (07/18/2000) - The world is about to get its first broadband powerhouse.

Excite@Home Inc. and Dutch broadband provider Chello Broadband NV would create one of the largest Internet companies outside the U.S. on Tuesday when they announced here that they would merge all of their international assets. The merged businesses would be called Excite Chello and would be based in London and Amsterdam. Roger Lynch, CEO of Chello, would also be the CEO of the new company.

Excite Chello would start life with some 300,000 subscribers, and would include operations in Europe, Australia, Japan and Latin America. Excite@Home CEO George Bell said he expected that number to hit 500,000 by the end of the year.

The companies have been negotiating since June, when Chello canceled an initial public offering on the Amsterdam stock exchange. John Malone, one of AT&T Corp.'s largest individual shareholders and the chairman of Liberty Media, is also in on the deal; he's investing more than US$187 million and would have a seat on the board.

"If the venture is anything like the negotiations it should be a whaling success," Bell said.

Evan Rudowski, managing director of Excite@Home Europe, said the ownership structure of Excite Chello would be 43 percent for Excite@Home; 43 percent for UPC, the owner of Chello; 10 percent for employees in the form of options; and 4 percent for Liberty Media. The deal is valued at more than $5.1 billion.

"We'd really known each other for a long time," Rudowski said. "There aren't that many people in the cable broadband access space. We've been dealing with each other on and off in the past. Both companies recognized that if we could combine forces we could get much bigger much faster." Lynch, he added, worked with Excite@Home in his previous job as an investment banker with Morgan Stanley.

The new company also has its eye on U.K. broadband provider Telewest, 24.6 percent of which is owned by UPC. Neither Excite@Home nor Chello has a substantial footprint in the U.K. cable market, and the combined company is eyeing a stake in Telewest as a way to enter that market.

"We hope we will have the opportunity to do a deal with Telewest, but time will tell," Rudowski said. "We will have to wait and see."

The merger deal still has to pass EU regulatory scrutiny before it can be formalized, but Rudowksi says he doesn't anticipate any problems. "We just don't think anybody could really logically claim that Excite Chello has assets that are so significant that they could be dominant everywhere," he said.

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