Once a cutting-edge business, Internet Service Providers (ISP) are looking
like commodities. This makes sense. Look at the rush of free ISP
providers, such as NetZero and FreeDSL.com (which offers free high-speed
access).
One of the pioneering ISPs is EarthLink
. The company was founded by Sky Dayton, who started his
ISP in a 200-square foot office. The company was one of the first Net start-ups to go public.
However, AOL has been ramping its user base to incredible heights. As for
Earthlink, it has been trying to do the same. Last week, the company
purchased OneMain.com, which will boost Earthlink’s customer count to 4.2
million (second only to AOL). The deal gives Earthlink penetration in rural
markets.
The price tag was $308 million. The deal was $150 million in cash and $158
million in stock. Apparently, OneMain.com wanted an all-stock deal. Hmmm.
Perhaps they think Earthlink will go up. What’s more, Earthlink declared it
would buy 5 million of Earthlink shares back.
While Earthlink still loses money, it can afford to. There is about $670
million in the bank. Don’t expect this company to appear on the Internet
Cash-Dead List.
Unfortunately, Earthlink’s stock price has been in a rut. In the past year,
Earthlink was at a nose-bleed $71-1/4. Now it is selling at a lowly
$16-1/2 (the market capitalization is $1.9 billion). If the stock stays at
this level, chances are very good it will be buyout bait.
Of course, there are U.S. players who would be interested. One name that
comes up is WorldCom. But I don’t think it will be a U.S. player. Actually,
we have been seeing much consolidation come from overseas.
When Lycos was trading at a lowly level, Terra Networks (an ISP
backed by a the Spanish telephone company) purchased the company for $12.5
billion. Basically, Europe is behind the US in Web development. But
mergers and acquisitions can help cure the problem.
Interestingly enough, Vodafone was apparently interested in buying Lycos.
With that not possible, could Earthlink be on the list now?
