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MediaOne nods to AT&T
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May 3, 1999: 11:24 a.m. ET
Fellow cable provider Comcast has until Thursday to top $85-a-share offer
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NEW YORK (CNNfn) - MediaOne Group Inc. said Monday it has accepted a $58 billion buyout proposal from AT&T Corp., rejecting an earlier bid from fellow cable firm Comcast Corp.
Next to move, or see its bid for the nation's No. 4 cable provider rejected, is Comcast, which has been trying to line up a new offer with its well-heeled backers: America Online Inc. (AOL) and Microsoft Corp. (MSFT).
The Comcast camp has until Thursday to respond. AT&T would have until May 22 to up its offer again, if need be.
In a statement, MediaOne said it believed the AT&T $85-a-share cash-and-stock offer is "superior" to Comcast's $48 billion bid.
MediaOne (UMG) said it sent a notice to Comcast Saturday explaining as much. "[MediaOne] is basically in auction mode," one source close to MediaOne said.
But the complexities of the potential bidding war don't end there. Microsoft may be hesitant to ruffle feathers of AT&T because Microsoft has an important contract for software with Ma Bell set to be signed soon.
MediaOne must pay Comcast $1.5 billion in break-up fees if the deal falls through -- raising the prospect that Comcast may take its money and walk.
Comcast is expected to return with a new offer, sources said, but a spokeswoman said she didn't know whether a new bid will come.
"It's quite possible they'll do a counter-bid, but the bottom line is that AT&T may be willing to pay more," said Douglas Shapiro, an analyst at Deutsche Bank Securities. "It looks like AT&T is digging in its heels."
The bidding battle effectively pits Comcast President Brian Roberts, who has a reputation for being a savvy buyer of undervalued cable properties, and AT&T Chief Executive C. Michael Armstrong.
Why AT&T is so hungry
Cable lines are a key conduit for high-speed communications, thus important for the future of the Internet as well as useful in transmission of voice, data, and video.
The stakes are high for AT&T because MediaOne is one of the last cable companies in the nation that isn't family-owned, suggesting that any effort to wrest one of those from their owners will be tough.
Those include Adelphia Communications (ADLAC), controlled by the Rigas family, Cox Communications (COX), and Roberts' Comcast. The Dolan family owns roughly 30 percent of Cablevision Systems (CVC); and AT&T has about a one-third stake.
AT&T already covers a third of the U.S. market following its acquisition of Tele-Communications Inc.; buying MediaOne would give it national coverage of around 65 percent.
Owning cable lines offers another important benefit for AT&T: reaching directly to homes. A huge sticking point for AT&T in its effort to offer local telephone service to its customers is the near-monopoly on copper wires enjoyed by local Bell companies, or "Baby Bells."
A buyout of MediaOne would make AT&T the nation's largest cable company, with reach into some 26.5 million households and a major presence in 18 of the top 20 markets, including Atlanta, Boston and Los Angeles.
MediaOne shares were down 1-1/4 to 80-3/8 in Monday morning trading. AT&T shares were up 1-3/8 to 51-7/8.
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