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News > Deals
Comcast in AT&T cable bid
July 9, 2001: 3:30 p.m. ET

Telecom shares up after cable operator's unsolicited $44.5B offer for unit
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NEW YORK (CNNfn) - AT&T Corp. stock surged Monday after an unsolicited $44.5 billion bid for its cable business from cable TV operator Comcast Corp.

Comcast unveiled its all-stock offer Sunday for AT&T's broadband unit, which AT&T is planning to spin off to shareholders following the issuance of a tracking stock later this year. Comcast said it made the announcement after months of merger negotiations with AT&T failed.

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graphicCNNfn's Chris Huntington gives the details according to Comcast for AT&T's broadband cable unit.
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New York-based AT&T is the nation's biggest long-distance telephone and cable television company. Philadelphia-based Comcast is the No. 3 U.S. cable operator.

The Comcast offer, totaling $58 billion, includes $13.5 billion in assumed debt and ranks as the largest U.S.-based announced merger since the $124.5 billion AOL Time Warner pairing announced in January 2000. It's also the biggest in the last 18 months, according to data from Thomson Financial Securities data.

AT&T has no plans to sell off the broadband unit but will evaluate Comcast's bid, spokeswoman Eileen Connolly reiterated Monday. AT&T is continuing with its plans to split into four separate companies and is planning an IPO of the broadband unit before the end of the year, pending shareholder approval.

The broadband unit, which will trade as a tracking stock, will then be spun off as an asset based security within 12 months, she said.

"We expect a public sale of some portion of the tracking stock," Connolly said.

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AT&T reorganization calls for the creation of four businesses: AT&T Wireless, AT&T Broadband, AT&T Consumer, and AT&T Business.

AT&T Wireless is now trading as an independent company. AT&T also plans to distribute its consumer unit to shareholders as a tracker but no part of the business will be sold to the public.

Nearly a dozen companies have grown from the U.S. telephone monopoly. In 1984, AT&T splintered into 7 regional bell operating companies and the smaller AT&T. In 1995, AT&T split again, spinning off Lucent Technologies (LU: up $0.25 to $6.35, Research, Estimates) and computer company NCR. Now, AT&T Wireless has gone solo and the partial IPO of the broadband unit is on tap for sometime this year, Connolly said.

Better than an IPO

New of the Comcast offer caused AT&T (T: up $1.98 to $18.70, Research, Estimates) shares to gain nearly 12 percent Monday, while shares of Comcast (CMCSA: down $2.90 to $38.95, Research, Estimates) shed nearly 7 percent. AT&T Wireless (AWE: down $0.59 to $16.56, Research, Estimates), which the parent firm spun off, dropped more than thee percent in its first day of trading as a fully independent company Monday.

Under its offer, Comcast would assume $13.5 billion in AT&T debt, and would acquire AT&T's interests in Time Warner Entertainment, Cablevision, and Rainbow Media by assuming more debt and issuing more equity to reflect their value.

The deal would dilute the value of Comcast shareholders' existing stock as the company plans to issue an additional 1.05 billion shares to pay for the AT&T cable assets. It also would make current AT&T investors the majority shareholders in the new combined company.

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graphicBrian Roberts, President of Comcast, chats with CNNfn about bid for AT&T's cable unit.
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Comcast expects to generate at least $1.25 billion annually once it fully merges AT&T Broadband and Comcast. The potential savings could shoot up to $2.8 billion annually as the companies work to improve the broadband unit's margins, the company said in a statement.

Officials at Comcast told analysts that buying AT&T Broadband would cut its earnings by 1 percent to 4 percent in the first year, but add 2.5 percent to 5 percent to earnings in the second year.

Comcast is giving itself three years to hit its goal of $1.25 billion in savings, President Brian Roberts told CNNfn's The Money Gang.

"If we can get $1.25 billion, we think we can do a lot better," Roberts said. "Every acquisition we've done in 25 years we've been able to average a 42 percent margin."

The Comcast offer is better than AT&T's current plans for the broadband unit, which include an IPO, Roberts said.

"[Their] shareholders will get a faster, better payout ... It accelerates AT&T's plan with a better company," Roberts said.

Comcast's statement did not explicitly threaten a hostile bid for AT&T's cable unit but suggested it wanted its offer to be considered by AT&T shareholders.

"At this point, however, we believe that AT&T's board of directors should consider our proposal before a proxy statement relating to its broadband tracking stock proposal is sent to AT&T shareholders later this month," Roberts said in a statement. "Our proposal represents a dramatic acceleration of AT&T's plan to separate its broadband business ... And given our track record, I'm confident that they will welcome our stock as currency."

World's largest cable provider

The combined Comcast-AT&T broadband would create the biggest broadband communications provider with about 22 million subscribers and leading positions in eight of the top 10 U.S. markets.

The Comcast offer makes sense, said analyst Pat Commack, of Guzman & Co. Comcast has about 8.4 million subscribers, including its recent purchase of an AT&T Broadband's cable system in Baltimore.

"Big is better in this industry," Commack said. "Scale is everything and they are very successful cable operators."

Comcast, which went public in 1972, offers both digital cable and high-speed Internet access. The company owns: majority stakes in electronic retailer QVC; Comcast-Spectator, which owns the Philadelphia 76ers basketball team and Flyers hockey team; and the Golf Channel. Comcast is family owned and currently is controlled by Brian Roberts, son of founder Ralph Roberts. The cable company also holds a controlling stake in E! Networks

Denver-based AT&T Broadband, a unit of AT&T, is the largest broadband services company in the United States, offering entertainment services to about 16 million customers. The company offers high-speed cable Internet, digital cable and phone.

AT&T created the broadband unit through its acquisition of Tele-Communications Inc. and MediaOne Group.

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Before its share price fell Monday, Comcast estimated the value of the offer at $12.60 a share to AT&T shareholders, which it pointed out was about 75 percent of the value of AT&T stock Friday, adjusted for the spinoff. AT&T itself closed at $16.72 last Friday.

The Comcast offer is fair but is low by about $3, Commack said. However, analyst Jeff Halpern, of Sanford Bernstein, said the Comcast bid is in the ball park.

AT&T Broadband has strong potential but the unit "has yet to deliver against margin objectives, though I do expect it to show full 300 basis points this year," Halpern said.

It will take months for Comcast to negotiate a deal because the broadband unit is not independent. "There is nothing to tender for," Guzman said. "Once it becomes a tracker it will still be owned by the parent."

The proposed deal was quick to prompt criticism by consumer advocates, who worry about further consolidation in the industry.

Gene Kimmelman of Consumers Union said that the combination would be a "very dangerous combination of cable monopolies."

The Federal Communications Commission could intervene, and Mark Cooper of the Consumer Federation said the merger would mean a "full-scale, all-out" antitrust war.

An AT&T spokeswoman confirmed to CNNfn Sunday that there have been talks between AT&T and Comcast, but said they began about a month ago.

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Comcast said Sunday its offer is for considerably more than the estimated value of the AT&T's cable operations as a stand-alone business. It said it estimated savings of about $1.2 billion annually from combining AT&T's cable unit with its own operations, and that those savings could rise to between $2.6 billion and $2.8 billion as the companies work to improve AT&T cable's profitability.

Comcast's bid for the broadband business is expected to be long and drawn out but other parties may also launch their own offers. AOL Time Warner, Vivendi SA (V: down $0.30 to $55.30, Research, Estimates), Charter Communications (CHTR: up $0.11 to $22.70, Research, Estimates) and Cox Communications Inc. (COX: up $0.08 to $42.85, Research, Estimates) were seen as potential interested, industry observers said. AOL (AOL: up $0.58 to $50.69, Research, Estimates) is parent of CNNfn.com.

Analysts downplayed the likelihood that Comcast would partner with anyone. But AT&T, because of its fiduciary responsibility to shareholders, must consider the Comcast offer, though its board will likely reject it.

"AT&T is in a pickle," Commack said. "Comcast left room to enhance the bid."

-- from staff and wire reports graphic

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.