EarthLink Inc. and
Sprint Corp. announced Friday it will amend their alliance by eliminating their exclusive Internet branding and ownership terms, which could open the door for a possible takeover by another telecom or technology company such as Microsoft or Apple, analyst speculate.
The agreement between the telephone and Internet provider, which was formed in June of 1998, will be phased out over time, EarthLink CEO Garry Betty said, but Sprint’s 26.7 percent stake in EarthLink will continue until September when it can then consider its options, including consideration of other third-party acquisitions.
Although Sprint will continue to market EarthLink to dial-up customers for some time, it may use EarthLink’s Internet applications on a wholesale basis and market them as Sprint services in the future. EarthLink will continue to use Sprint’s network infrastructure to serve its customers.
The companies said the move will make it easier to pursue deals with potential partners, but Betty said whatever Sprint decides to do with its holdings, EarthLink is prepared to continue as a public company. “The new terms increase the flexibility each company has to build strong brands and customer relationships, and pursue deals with additional potential partners,” said Garry Betty, chief executive officer of EarthLink.
“The industry has evolved since we first joined forces, and we felt that we needed to restructure our business relationship to reflect the changing needs of both the market and the two companies,” William Esrey, chairman and chief executive of Sprint, said in a written statement.
Possible buyers include Apple
As the second-largest Internet-service provider behind
AOL Time Warner Inc., some Wall Street analysts have speculated that
Microsoft Corp. and
Apple could be potential EarthLink buyers.
Vik Mehta, an analyst at Goldman Sachs, told
Financial World News EarthLink would be a good purchase for a number of different companies. “The ISP business is about having a strong brand and lots of people signed up for the services, and EarthLink has those pieces today,” he said. “It’s always been part of their strategy to partner with someone who’s much bigger.”
Despite EarthLink being a lucrative takeover target, Mehta also believes the ISP business is not very profitable and a partner or buyer could help EarthLink expand its business faster and more effectively.
Apple purchased 7,083,333 shares, or an eight percent share, of EarthLink in January 2000 for US$200 million. At the same time, Apple’s vice president of worldwide product marketing, Phil Schiller, was appointed to the EarthLink board of directors. Since that time, EarthLink has been the default Internet Service Provider (ISP) on Macintosh computers. That agreement lasts through January 4, 2005. The agreement also makes EarthLink the exclusive default ISP for dial-up, ISDN and DSL services on Macs sold in the U.S. for a minimum of two years.
Sprint invested 30 percent of its money in EarthLink in February 1998. Cutting back its investment to a little less than 15 percent in early 2000 when EarthLink merged with MindSpring Enterprises Inc., Sprint bought an additional 26 million shares for about $473 million last May.
EarthLink will take an $11.3 million charge in the first quarter to write off assets related to the co-branding agreement. Sprint did not say if it would take any charges.