If Anyone Can Save Excite...
The end may be near for the once-mighty Excite Internet portal. Patti S. Hart, appointed chairman and CEO of Excite@Home Corp. on Apr. 23, already is exploring opportunities to sell the money-losing Excite business and may shut it down in the next several months if no buyers emerge, BusinessWeek has learned. It would be an inglorious end to a portal that once rivaled Yahoo! and was one of the pioneers of the Internet. "The cash position of the company is paramount," says Hart. "I need to investigate all of the alternatives."
That's just the kind of hard-nosed leadership that Excite@Home needs these days. The Redwood City (Calif.) company, which operates the Excite site and provides broadband Net connections over cable TV networks, is in desperate straits. Last year, it had revenues of $616 million and lost $7.4 billion, including a huge writedown of assets it had acquired that are now useless. It's burning cash so fast that the company says it may not survive if it can't raise $75 million to $85 million by the end of June. Its stock has dropped from $99 two years ago to about $4 now.
BACKBONE. So who is the woman willing to take on this troubled company? The tale of how Hart came to be Excite@Home's new chief suggests that the 44-year-old telecom veteran has the backbone and decisiveness necessary to give the company a fighting chance. During her negotiations with Excite@Home's board, Hart insisted on the freedom to sell off assets, including Excite, according to one source close to Hart. She also helped convince the company's board to ask former chairman and CEO George Bell to resign, even though he had planned to stay on as chairman until the end of 2001. "I think Patti didn't want any confusion about who was in charge of the company," says analyst Abhishek Gami of William Blair & Co.
She made sure she would be well compensated, even if Excite@Home doesn't survive. She will receive a base salary of $550,000 and a bonus of as much as $412,500 yearly, according to documents filed with the Securities & Exchange Commission. And she will be paid a signing bonus of $1 million spread out over 18 months. If Excite@Home is acquired or goes under, she will receive one year's salary as well as 100% of her targeted bonus. Under certain circumstances, she could get two years' salary and all of her possible bonus.
The job of luring Hart to Excite@Home began earlier this year when she was contacted by Jeffrey E. Christian, a headhunter at Christian & Timbers in Cleveland. "She is an incredible find," says Christian. "She is almost a perfect fit." Over 14 years, Hart had made a name for herself at Sprint Corp., rising to head the core long-distance business. In June, 1999, she left to run upstart Telocity Inc., which provides broadband connections over telephone lines. But by December, 2000, Telocity's fortunes had began to founder, and Hart cut a deal to sell the company to Hughes Electronics Corp., which provides broadband Net connections through its DirecTV subsidiary. Was Hart interested in the Excite@Home job, Christian wondered? Although she was hesitant because the Telocity sale hadn't closed, she was "willing to listen," he says.
CAUTIOUS. The more she listened, the more attractive the job sounded. "People who know me say this is such an obvious fit for you," says Hart, who had the broadband experience crucial for Excite@Home. Still, she was cautious. Her experience at Telocity had been rough. The company started running short of cash only months after its initial public offering in March, 2000. When Hart ultimately agreed to sell Telocity to Hughes, it was for $2.15 a share, 82% less than the price at which the company had gone public. "She did as well for her investors as anybody could have," says Leo Hindery Jr., a cable exec who sat on Telocity's board.
Hart combed Excite's SEC filings. Sure, the company was losing money, but it looked as if it had enough cash to last a good while. Plus, she took comfort in the backing of AT&T, Excite's controlling shareholder. By Apr. 13, a Friday, she was sold enough that Excite started setting up press interviews for her the next week.
Then trouble hit. On Saturday, Apr. 14, Bell and Excite's Chief Financial Officer Mark McEachen told Hart that the company's finances were deteriorating. In fact, the company was facing a severe cash crunch and needed to raise at least $75 million by the end of June: It only had $105 million in cash at the close of the first quarter, about half the $201 million it had three months earlier. Hart declined to comment on what happened that weekend, but the source close to Hart was blunt. "She went nuts," he says. "Patti can't afford to be on the wrong side of another one."
After she learned about Excite's dire financial straits, Hart toughened up her negotiating with the board. Hart confirms she talked the next day, Sunday, with John Petrillo, AT&T's chief strategist and a member of Excite's search committee, although she declines to provide details. It was over the next few days that Hart insisted on the ability to sell or shut Excite and that she be given the chairmanship, says the Hart source.
Hart's portrayal is slightly different. She says she had detailed conversations with Excite's board about how much freedom she would have to sell off certain assets. But, she says, she never insisted that Bell resign. Rather, she says, "George stepped up and said it was time to make a change." Not so, says Bell. He says he received a call from an Excite board member he won't name, suggesting that he give up the chairman's post. "I think their fear was that Patti may not feel she had total control," he says. A second source, close to the board, says directors already had lost confidence in Bell because of the company's performance. Bell negotiated a severance package that will pay him his $400,000 salary through June and 50% of his 2001 bonus. Hart was named CEO and chairman on Apr. 23.
While Hart got what she wanted in her negotiations, she's hardly home free. Excite@Home has a tentative deal to sell parts of its network to AT&T to raise the cash it needs, but that would only solve the company's cash woes for this year. And selling the Excite business won't be easy, because few companies are interested in Net portals these days.
At least, Excite@Home isn't going to end up in bankruptcy like so many other dot-coms. AT&T and the other cable operators use the company to install broadband connections. The @Home piece of the business has become the largest provider of broadband Net connections in the U.S. with 3.2 million subscribers. If Excite@Home runs out of cash, its operations may be folded into AT&T or divvied up among several cable companies. Hart is determined not to let that happen. "We're leaders in an industry that everybody believes in," she says. Hart will need the backbone she showed during her negotiations to keep this beleaguered Net upstart afloat.
By Peter Elstrom in New York