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Comcast wins AT&T cable
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December 19, 2001: 7:24 p.m. ET
No. 3 cable firm to pay $47B in stock, assume $25B in debt for cable unit.
By Luisa Beltran
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NEW YORK (CNN/Money) - Comcast Corp. won the battle for AT&T Corp.'s cable-television business Wednesday, agreeing to pay $47 billion in stock and ending an epic five-month battle for a valuable pipeline into about a fifth of the nation's homes.
The deal will combine AT&T's cable unit, the nation's largest, with the nation's No. 3 cable operator, Comcast. Left out is the nation's No. 2 cable operator, AOL Time Warner Inc. (AOL: Research, Estimates), which was one of the unsuccessful bidders.
The new company, to be called AT&T Comcast Corp., will have about 22 million subscribers and $19 billion in annual revenue.
Comcast President Brian Roberts will serve as CEO of the new company and the Roberts family will control one-third of the voting interest. AT&T CEO Michael Armstrong, who was expected to retire in May 2003, will serve as chairman of the new company when the merger closes at the end of 2002.
AT&T's (T: Research, Estimates) decision to choose Comcast Corp. is an about-face for the nation's largest long-distance phone provider. In July, after AT&T rejected Comcast's bid, it decided to shop the broadband unit to various suitors.
Many industry analysts and some investors had doubted that Comcast would win its fight after the family-controlled cable company had aggressively criticized AT&T's management during the earlier round of bidding.
But after the deal was announced late Wednesday, executives at Comcast and AT&T were trying to show they could make beautiful music together in the new venture.
"AT&T Broadband and Comcast can accomplish more together than we could alone," Armstrong said.
"I look forward to working with Mike and the AT&T Broadband team to achieve the full potential of this tremendous new company, " Comcast President Roberts said.
Under the deal, AT&T will spin off its cable, or broadband, business and merge it with Comcast to form AT&T Comcast Corp. AT&T shareholders will receive 0.34 share of the combined AT&T Comcast for each of their shares, while Comcast shareholders will receive one share of the new company.
The board of New York-based AT&T unanimously approved the deal. The companies put the value of the AT&T broadband unit at about $13.07 per AT&T share, based on Comcast's Wednesday's closing price.
That puts the total value of the broadband unit at about $47 billion, a bit higher than the unsolicited $44.5 billion offer Comcast made for the unit back in July. The AT&T board rejected that bid as insufficient at the time.
The most widely traded class of Comcast (CMCSK: Research, Estimates) stock lost $1.02 to close at $38.07 ahead of Wednesday's announcement, while shares of AT&T rose 15 cents to $16.80.
A desire to block AOL Time Warner from winning the unit led Microsoft Corp. (MSFT: Research, Estimates) to provide financial assistance to both Comcast and competing cable operator Cox Communications Inc. (COX: Research, Estimates). Microsoft ended up with $5 billion in preferred securities as part of the deal.
With its stake in the business, Microsoft now has its most direct link into millions of the nation's homes. Companies like AT&T, Comcast and Microsoft are eager to offer not only cable TV service over the cable lines, but Internet access, new services like interactive television and in some areas traditional telephone service.
AOL, owner of CNN/Money, also lost out in its attempt to buy back AT&T's 25.5 percent stake in its Time Warner Entertainment unit, which includes Warner Brothers studios, HBO and its cable operations. That stake will become part of AT&T Comcast, along with Comcast's entertainment units such as cable shopping channel QVC and entertainment channels E! and the Golf Channel.
AT&T shareholders will own about 56 percent of the combined company, which will also assume about $25 billion in debt and other obligations, and about 66 percent of the voting interests.
AT&T Comcast Corp. will be based in Philadelphia, Comcast's current home, and maintain offices in New York City.
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In its initial offer in July, the voting structure proposed by Comcast troubled AT&T. AT&T would have received majority share ownership, while Comcast would have near 45 percent voting control.
Under Armstrong, AT&T paid about $106 billion in the late 1990s for the cable businesses now being sold for less than half that amount. It was supposed to be a new direction for AT&T, which will now have only its shrinking long-distance telephone and data operations left. AT&T spun off its wireless business previously.
AT&T over the summer pushed aside plans for an IPO of the broadband unit when Comcast made its unsolicited bid. AT&T now plans to proceed with other aspects of its restructuring, and plans to create a tracking stock of its consumer long-distance unit, to be distributed to shareholders in mid-2002.
Credit Suisse First Boston and Goldman Sachs acted as financial advisers to AT&T while Morgan Stanley, J.P. Morgan Chase, Merrill Lynch and the Quadrangle Group advised Comcast. 
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