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Internet service providers

Earthlink and Mindspring Merge to Challenge AOL in US Internet Market

Strategic Insights

— 1 min read

The merger of Earthlink and Mindspring will create a new internet service provider (ISP) valued at $3.3 billion and with 2.8 million subscribers, making it the second-largest ISP in the US after AOL. The new company aims to challenge AOL's dominance in the market and become the leading ISP in the world within a relatively short period. The merger is the largest to date in the highly fragmented ISP market, with the new company targeting the premium-priced market and focusing on providing superior customer service.

Key Takeaways:

  • The merged company, Earthlink, will have a valuation of $3.3 billion and 2.8 million subscribers, making it the second-largest ISP in the US.
  • Earthlink aims to challenge AOL's dominance in the market and become the leading ISP in the world.
  • The new company will target the premium-priced market and focus on providing superior customer service.
  • Earthlink will not enter the market for free or discounted ISP services.
  • The company aims to have 5 million subscribers by the end of 2000 and 8 million by the end of 2001.
  • The merger is the largest to date in the consolidation of the highly fragmented ISP market.
  • Earthlink shareholders will receive 1.615 shares in the new company for each Earthlink share, while Mindspring shareholders will get one share.
  • The new company will have revenues of $650 million but will be loss-making as neither Earthlink nor Mindspring is profitable.
  • The merger will be accounted for as a pooling of interests, an accounting technique that allows for favourable treatment of future earnings.

Statistics:

  • 2.8 million: Number of subscribers for the new company, Earthlink.
  • 18 million: Number of subscribers for AOL, the leading ISP in the US.
  • 3.3 billion: Valuation of the new company, Earthlink.
  • $650 million: Revenue for the new company, Earthlink.
  • 5 million: Number of subscribers Earthlink aims to have by the end of 2000.
  • 8 million: Number of subscribers Earthlink aims to have by the end of 2001.

Sources:

  • Financial Times Limited, 1999.

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