Prodigy Urges Shareholders To Wait

Executives at the fifth-largest ISP in the U.S. are telling their minority shareholders to wait before taking any action as a result of SBC Communication's decision to buy up the company.

by Jim Wagner of internetnews.com [October 4, 2001]

Prodigy (NASDAQ:PRGY) executives, hoping to avoid any improprieties, have named a special independent counsel to advise shareholders affected by SBC Communications (NYSE:SBC) intentions to buy out the Internet service provider (ISP).

There is approximately 10 percent of the fifth-largest ISP that isn't owned by Mexican billionaire Carlso Slim Helu or SBC. The independent board is expected to provide its recommendation or rejection of SBC's offer by Oct. 16.

The news comes a week after the SBC signaled its desire to purchase all the shares of Prodigy owned by Helu, which comes out to roughly 48 percent. The deal, valued at approximately $385 million, puts $162 million in the coffers of the TelMex (Mexico's monopoly telecommunications company) owner.

Deciding enough was enough, shareholder SBC recently made the necessary moves to acquire its digital subscriber line (DSL) and dial up Internet service provider (ISP) arm after watching the ISP continue its downward spiral. Prodigy has been plagued with financial difficulties for more than a year now, even after considerable bailouts by its telco parent.

Despite its popularity with consumers, who rewarded the ISPs customer support efforts with an impressively low churn rate, Prodigy was never able to turn its operations around and make its business profitable. A $110 million bailout and the transfer of all of SBC's DSL customers earlier this year wasn't enough to get the company's finances in the black.

It's second quarter 2001 finances, reported July 26, posted meager returns on the SBC investment, with only $3 million in earnings before interest, taxes, depreciation and amortization (EBITDA).

This week's announcement is likely to improve the company's value in the near term. The stock's value, which SBC has announced to buy back at $5.45 per share, jumped to $5.51 before the market closed.

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