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AT&T gets Microsoft boost
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May 5, 1999: 11:40 a.m. ET
Analysts praise reported alliance that eliminates a competitor for Media One
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NEW YORK (CNNfn) - AT&T Corp.'s stock opened markedly higher Wednesday after reports the telecom giant has forged a strategic partnership with Microsoft Corp. that appears to seal its bid for Media One Group.
The reported deal would involve Microsoft investing $5 billion for a small stake in AT&T (T) in exchange for a commitment that set-top boxes deployed by AT&T to offer bundles of digital services would use Microsoft's Windows operating system. The alliance was first reported in Wednesday's New York Times.
AT&T Chairman C. Michael Armstrong declined to comment on the potential deal Wednesday in a conference call with reporters. He did say, however, that any deal with potential vendors for set-top boxes would include no "exclusivity" on the vendors part.
The agreement, combined with a separate deal late Tuesday between AT&T and Comcast officials, not only gives AT&T the investment backing of one of the country's leading technology firms, but effectively removes any serious competition in the bidding war for cable giant Media One (UMG) from AT&T's path.
"The thing that really made me happy is the deal with Microsoft," said Philip Wohl, a telecom analyst with S&P Equity Group. "[AT&T Chairman C.] Michael Armstrong is a master negotiator. He never gives anything away."
Wohl and other analysts said they do not expect another third party bid for Media One now that both Microsoft and Comcast (CMCSK) have allied themselves with AT&T in separate deals.
MCI Worldcom (WCOM), which had expressed some interest in joining Comcast's separate $53 billion bid, "was never a serious candidate," Wohl said.
Meanwhile, analysts praised the deal between AT&T and Comcast, which effectively offered the Philadelphia-based cable company a $1.5 billion kill fee -- paid by Media One - and 2 million new cable subscribers predominately from Lenfest Communications, a regional cable company recently acquired by AT&T.
AT&T, in return, nets 3 million new cable customers through the Media One deal -- making it the nation's largest cable company - as well as a $9.2 billion payment from Comcast and fewer antitrust concerns than if it had consumed Media One on its own.
Analysts said the reduced legal concerns and $9.2 billion payment from Comcast in exchange for two million new subscribers should actually make the deal more accretive for AT&T.
"We'll probably see lower dilution and strategically, AT&T will have a greater cable footprint without paying more," said Linda B. Meltzer, an analyst with Warburg Dillon Read.
AT&T stock was up 3-9/16 to 55-1/8 in Wednesday morning trading. Comcast rose 4 to 68-1/8, while Media One fell 13/16 to 76-13/16.
Microsoft slipped 1-1/8 to 76-15/16 while MCI Worldcom eased 15/16 to 82.
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