Rumor of Gateway Purchase Boosts EarthLink
Shares of EarthLink Network jumped 20% Tuesday, apparently in response to an unattributed rumor that personal computer maker Gateway would buy the Pasadena-based Internet service provider.
On a day when many Net stocks fell, EarthLink shares rose $9.63 to close at $57.25 in Nasdaq trading that was more than nine times heavier than the stock’s three-month daily average. The stock spiked as high as $62.38.
That was still well below the $75 that Gateway was rumored to be willing to pay for shares of EarthLink, one of the country’s top independent Internet service providers, or ISPs, with more than 1 million customers. Based on the number of shares outstanding, the offer would be valued at $2.4 billion. The CNBC cable channel reported that Gateway would make an all-cash bid but didn’t cite its source.
EarthLink spokeswoman Kirsten Kappos said the company couldn’t comment on the rumors. San Diego-based Gateway, the No. 2 direct seller of PCs, also had no comment.
Five-year-old EarthLink is a frequent subject of takeover rumors because many technology analysts doubt that independent ISPs can long survive in a market increasingly dominated by larger rivals like AT&T; and America Online.
Gateway has said it is interested in making acquisitions and investments to add services and cut its dependence on PC hardware. In April, Gateway filed to sell as much as $1 billion in debt along with preferred and common stock, with the proceeds to be available for acquisitions. Gateway already operates its own ISP called Gateway.net.
Long-distance provider Sprint owns 28% of EarthLink and would have 10 days to top a merger deal agreed to by EarthLink. Sprint is prohibited from initiating a takeover itself until the summer of 2001, according to the terms of a standstill agreement between the companies. A Sprint spokesman in Kansas City, Mo., declined to comment on the EarthLink-Gateway rumors.
In New York Stock Exchange trading Tuesday, Gateway shares fell 69 cents to close at $64.75 and Sprint shares lost 94 cents to close at $53.06.
