Aether deal with AOL spurs stock

Internet giant buys minority stake in wireless company

`AOL's name is magic'

Terms undisclosed

Owings Mills firm's shares spurt 26%

November 07, 2001|By Andrew Ratner | Andrew Ratner,SUN STAFF

Shares of Aether Systems Inc. jumped 26 percent yesterday, one of the stock market's largest gains for the day, after the Owings Mills-based wireless communications company announced a deal with Internet giant America Online Inc.

America Online, a Dulles, Va.-based subsidiary of AOL Time Warner Inc. and the world's top Internet provider, made a minority investment in Aether. The amount was not disclosed.

Aether will be able to include AOL e-mail, instant messaging and other features into systems it develops for businesses to communicate across hand-held devices.

"AOL's name is magic for whoever gets sprinkled with the fairy dust, and in this case it's falling on Aether," said Paul Coster, an investment analyst with J.P. Morgan in New York. "It's as good a partner as Aether could have."

Aether's stock price rose $1.72 to close at $8.33 yesterday, making it the fifth-largest gainer for the day on the Nasdaq stock market.

It was the kind of day to which the Owings Mills company had become accustomed nearly two years ago when it went public in a tech boom and raised more than $1.6 billion in two stock offerings four months apart. Its stock rose past $300 at one point. But uncertainty about the economy in general and technology in particular caused the stock to drop 80 percent this year and led Aether to lay off more than 500 workers since spring.

The company now employs 800 people, almost half of them in Maryland.

The AOL deal is significant beyond the stamp of approval from a global multi-media company: Aether's focus has been on large corporations and government agencies, but it now believes it will be able to sell services more effectively to small and medium-size businesses.

Aether will be able to tailor services to include AOL's small business Web portal, netbusiness- The Internet site provides information on salaries, industry trends and news. Begun nine months ago, AOL's business portal has several million subscribers.

"Small businesses don't know who Aether is. Now that we have a brand with AOL, it's huge for us," said David S. Oros, Aether's chairman and chief executive officer. "AOL rarely farms out anything, so this is a big thing for us."

Aether officials declined to provide estimates on how the deal might add revenue. The company lost about $75 million in the quarter that ended Sept. 30, but is viewed as healthier than its competitors, because it has $600 million in reserve.

"Aether doesn't need the cash right now, but getting a small infusion from AOL certainly is a benefit," said Riyad Said, an analyst with Friedman, Billings, Ramsey in Arlington, Va. "AOL's a marquee name, so it's a great validation and endorsement of Aether's platform."

AOL Vice Chairman Ted Leonsis said he first discussed his company's interest in building its small business base with Oros and investment banker George Stamas at a Ravens football game in Baltimore two months ago.

"We want to untether AOL from the desktop to wireless devices and the like," Leonsis said of the agreement with Aether. "We liked the company, we liked the management, and we liked the technology, so we decided to get into a big alliance. It's a significant investment by AOL."

"It's really a win-win for each company. The market has reacted quite positively," said Stamas, a vice chairman for Deutsche Banc Alex Brown, the investment bank in the deal, and a co-investor with Leonsis in Washington's professional basketball and hockey teams.

"It's a great day and really great for Baltimore."

Small and medium-size businesses, with up to 1,000 employees, had about 1.4 million subscribers who transmitted data across handheld devices at the end of last year, according to Cahners In-Stat Group, a technology research firm in Newton., Mass.

That number of subscribers is expected to grow to 15 million by the end of 2005, with businesses employing fewer than 100 people as the fastest-growing segment.

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