Case Study 7-2. The Hunt for Elusive Synergy - @Home Acquires Excite Background Information Prior to @Home Networks merger with Excite for $6.7…

Case Study 7-2. The Hunt for Elusive Synergy - @Home Acquires ExciteBackground InformationPrior to @Home Network’s merger with Excite for $6.7 billion, Excite’s market value was about $3.5 billion. The new company combined the search engine capabilities of one of the best-known brands (at that time) on the Internet, Excite, with @Home’s agreements with 21 cable companies worldwide. @Home gains access to the nearly 17 million households that are regular users of Excite. At the time, this transaction constituted the largest merger of Internet companies ever. As of July 1999, the combined firm, Excite @Home, displayed a P/E ratio in excess of 260 based on the consensus estimates for the year 2000 of $0.21 per share. The firm’s market value was $18.8 billion, 270 times sales. Investors had great expectations for the future performance of the combined firms, despite their lackluster profit performance since their inception. Founded in 1995, @Home provided interactive services to home and business users over its proprietary network, telephone company circuits, and through the cable companies’ infrastructure. Subscribers paid $39.95 per month for the service. Assumptions•