As reported Wednesday [WAMN: 19-Dec-01], the board of AT&T met yesterday to decide the future of its AT&T Broadband unit, America’s largest cable-TV operator. The upshot? A unanimous vote to pursue a merger worth $72 billion with Comcast Corporation.
Three bids were on the table – from Comcast, Cox Communications and AOL Time Warner – although the board also considered retaining the business as part of AT&T. Revealed chief financial officer Charles Noski: “We pushed as hard as we could to get the best overall deal and compared that against our go-it-alone strategy, and ultimately decided that an AT&T / Comcast combination was the very best.”
Under the deal, Comcast is to issue 1.235bn new shares, valued at about $47bn, to AT&T investors and take on $25bn in debt and liabilities. The merger is expected to be completed mid-2002, with AT&T using the proceeds to reduce its debt mountain.
The result will be a new combined company branded AT&T Comcast, serving over 21 million subscribers and headquartered in Philadelphia with an executive office in New York. In charge will be chairman C Michael Armstrong (currently chairman/ceo of AT&T, a post he will retain until the deal closes) and chief executive Brian Roberts (presently Comcast president).
Comcast initiated the bidding war in the summer with a $40bn hostile bid [WAMN: 09-Jul-01]. Although this was rejected, AT&T remained open to the idea of a sale, resulting in a lengthy series of manoeuvres by several big cable and media firms – including Microsoft, which offered to support Cox and Comcast to frustrate AOL TW – before the three final offers made it through to yesterday’s decision time meeting.
However, Comcast’s triumphant bid is considerably sweeter than its unsolicited offer in July. Not only has it agreed to take on more debt, but the voting stake of the Roberts family – the clan that controls the successful suitor – has also been reduced.
AT&T felt the original offer handed too much power to the family, which owns only 2% of Comcast shares. The new deal, however, gives AT&T shareholders a 56% stake in the merged firm and a 66% voting interest – the final third going to the Roberts.
Another factor in Comcast’s favour was its ability to service AT&T’s debt, a criterion that weighed against the bid from smaller firm Cox. In addition, the offer from AOL TW – owner of the second largest US cable TV operator – may have suffered due to fears of regulatory opposition.
The merger continues the rapid consolidation of the cable industry, leading to just five firms accounting for 80% of subscribers. It will face close scrutiny by the Federal Communications Commission, though the fact that the two companies don’t compete head-to-head anywhere is expected to count in its favour.
Nevertheless, instant opposition was voiced by the Consumers Union, which said it would stand against the deal “unless there's a partial divestiture of some cable systems.” The lobby group’s Gene Kimmelman argued that the merged firm would have “the ability to leverage undue influence over which programming makes it in the marketplace.”
News source: Wall Street Journal