Monday, July 09, 2001
Comcast wants to buy AT&T Broadband
The Associated Press
NEW YORK — With its $44.5 billion offer for top cable television provider AT&T Broadband, Comcast Corp. wants to create a cable TV and high-speed Internet access behemoth that would dwarf all others.
The merger would give Comcast — currently the nation's third largest cable operator — 22 million cable TV subscribers and leading positions in eight of the top 10 U.S. markets.
The hostile bid was announced Sunday by Philadelphia-based Comcast after the company said merger negotiations with AT&T management fell apart amid concerns about Comcast's stock voting structure.
Comcast hopes AT&T investors will now pressure the company to strike a merger deal before a shareholder vote scheduled for later this month on plans to spin off AT&T Broadband as an independent company.
“AT&T's board of directors has the opportunity not only to deliver a considerable premium to its shareholders, but also to create both tremendous growth and significant value for the long term,” said Ralph J. Roberts, Comcast's chairman.
The offer came one day before the New York-based AT&T's spinoff of its wireless operation into an independent company, the first stage in a plan to break the communications conglomerate into five separate companies.
The biggest of those AT&T units is the sprawling cable operation that AT&T patched together with $100 billion in acquisitions that began just three years ago. The price tag on Comcast's offer suggests that AT&T overpaid for those acquisitions, an embarrassing admission AT&T management might like to avoid.
The AT&T Broadband business that Comcast is trying to buy includes MediaOne cable systems it was set to acquire two years ago before being foiled by a hostile bid from AT&T.
AT&T Broadband has more than 16 million subscribers, though planned divestitures would reduce that amount by 2 million. Comcast currently has more than 8 million subscribers.
Comcast also said it was prepared to buy AT&T's sizable interests in two rival cable operators: a 25.5 percent stake in Time Warner Entertainment, the nation's second biggest cable company after AT&T Broadband, and a 30 percent interest in Cablevision.
AT&T issued a statement Sunday saying it has no plans to sell the broadband unit.
“We will analyze their proposal and respond in due course. We have recently had some conversations with them but no agreements have been reached,” the statement said.
The combination would have been unthinkable before a recent court decision that overturned federal limits on the market share any one company can have.
The Federal Communications Commission is expected to propose new limits as early as this summer, but approval would take months. That leaves a window for mergers that might not have been approved before the court decision and might not be possible after the FCC makes its decision.
However, the FCC could warn cable companies that they may be subject to the new rules even if their mergers are announced before those rules go into place.
Consumer advocates worry the possible merger could lead to higher cable television bills and greater control over programming by cable operators.
“This is a very dangerous combination of cable monopolies which could expand cable's control from TV programming to high-speed Internet services,” said Gene Kimmelman, the lead lobbyist in Washington for Consumers Union, which publishes Consumer Reports magazine.
Just how far along the merger discussions were before Comcast issued its offer was a matter of dispute on Sunday.
Comcast said the talks have been going on for months, and a source familiar with the discussions said a deal was close to being sealed several weeks ago.
“It was absolutely clear that the management of AT&T shared the vision that these companies should be together,” the source said, speaking on condition of anonymity.
But another source close to AT&T disputed that characterization, saying that the board never received a formal proposal from Comcast and that the merger talks had been going on for about a month.
“There was no agreement on anything and we were not close on the money or value part of it,” said the source, who also spoke on condition of anonymity.
Shares of AT&T closed Friday at $22.24, up 26 cents, on the New York Stock Exchange, though its shares will be adjusted lower to $16.72 Monday to reflect the departing value of the wireless business that's being spun off.
Shares of Comcast Class A common stock fell 15 cents to $41.85 in trading Friday on the Nasdaq Stock Market, while its Class K shares fell 33 cents to $42.28.
Comcast said it was willing to buy the AT&T cable business with 1.0525 billion shares of its stock with a value of $44.5 billion based on its closing price Friday. It also would assume $13.5 billion in AT&T debt.
AT&T's original plan was to use cable TV for a direct link with millions of U.S. homes that might subscribe for bundles of service including AT&T long-distance phone service and high-speed Web connections.
The plan unraveled when the long-distance business began decaying faster than expected, eating into the revenue stream AT&T was depending on to acquire and upgrade aging cable systems for interactive services.
Comcast said it expects to generate savings of at least $1.25 billion annually upon the full merger of the two cable companies, with a potential to increase these benefits to between $2.6 billion and $2.8 billion annually.
Valuing its offer at more than $4,000 per cable subscriber, Comcast asserted that AT&T shareholders would receive a very substantial premium over published reports of the estimated value of AT&T Broadband.
Under the Comcast offer, AT&T shareholders would receive stock currently valued at $12.60 per AT&T share while retaining complete ownership of AT&T's traditional telephone and business services operations.
Comcast said published reports have valued those businesses at nearly $70 billion alone, while AT&T as a whole is currently valued at $83 billion.
That would mean the market is valuing AT&T Broadband at about $13 billion. However, the Wall Street Journal said in a March article that some analysts believed the broadband business was worth $60 billion on its own.
Comcast and AT&T have been involved in prior deals, including a recently closed transaction in which Comcast purchased a Baltimore, Md. cable system for about $518 million in cash.
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