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AT&T rejects Comcast bid
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July 18, 2001: 6:47 p.m. ET
$44.5B offer not good enough; AT&T receives other offers, no formal bids
By Staff Writer Luisa Beltran
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NEW YORK (CNNfn) - The board of AT&T Corp. on Wednesday unanimously rejected Comcast Corp.'s unsolicited $44.5 billion offer for AT&T's cable unit, opening the door to other potential bids.
AT&T's board, partially upon advice of its financial advisers, carefully reviewed the proposal but determined that the offer did not accurately reflect the value of the broadband business, the company said in letter to Comcast President Brian Roberts and Chairman Ralph Roberts.
AT&T was also troubled by the voting structure contained in the offer. AT&T would have received majority share ownership, while Comcast would have near 45 percent voting control.
"Further, the board is concerned that Comcast's multi-tier voting structure would put AT&T shareowners at a disadvantage in matters of corporate governance," AT&T Chairman C. Michael Armstrong said.
Last week, Comcast unveiled its $44.5 billion stock bid for AT&T Broadband. Philadelphia-based Comcast (CMCSA: down $0.07 to $36.92, Research, Estimates) is the No. 3 U.S. cable operator, while AT&T is the nation's biggest long-distance telephone and cable television company.
The combined Comcast-AT&T broadband would have created the biggest broadband communications provider, with about 22 million subscribers and leading positions in eight of the top 10 U.S. markets.
News of the Comcast bid caused AT&T shares to surge, adding over $14 billion in market value in the last week.
"However, we disagree with the AT&T Board's characterization of our offer as inadequate ... As evidenced by the reaction of their shareholders, the Board's concern about our corporate governance has no foundation. We think our stock's historical performance speaks for itself," Comcast President Brian Roberts said in a statement.
On July 16, CNNfn.com reported that the AT&T board would be meeting this week and a decision could be made.
"The spinoff is being delayed as we expeditiously review the alternatives," an AT&T spokeswoman said.
Other bidders surfacing
New York-based AT&T (T: up $0.13 to $20.94, Research, Estimates) directed its management Wednesday to explore financial and strategic alternatives for the broadband unit, including its previously announced restructuring plans.
AT&T has received overtures from other interested parties and the board has directed management to explore those opportunities, a source familiar with the situation told CNNfn.com. However, AT&T has not received any formal bids for the broadband business.
AOL Time Warner (AOL: down $4.80 to $44.65, Research, Estimates), the parent company of CNNfn.com, has been rumored to be interested in buying the cable assets. Cox Communication (COX: down $0.19 to $42.30, Research, Estimates) and Charter Communications Inc. (CHTR: Research, Estimates), which is controlled by Paul Allen, co-founder of Microsoft Corp. (MSFT: Research, Estimates), has also been mentioned.
AT&T's restructuring calls for it to split into four separate companies. The company had planned 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.
AT&T's board Thursday also decided to delay finalizing and mailing the proxy materials for its restructuring plans. However, it remains committed to separating the consumer and business units from the cable assets, and creating a tracking stock to reflect the performance of the AT&T consumer unit.
Comcast still in
Comcast signaled Wednesday that it is still in the running for the broadband assets. Comcast said it views AT&T's decision to examine strategic alternatives as "positive" and is pleased the phone company has decided to delay the broadband tracking stock plan.
But Comcast was surprised that AT&T's board did not ask for any further information.
"To that end, we remain prepared to hold immediate discussions with AT&T regarding our proposal," Roberts said.
Comcast also reiterated that it is prepared to acquire AT&T's interests in Time Warner Entertainment, Cablevision, and Rainbow Media by assuming more debt and issuing more equity.
AT&T's rejection was largely anticipated and Comcast is now expected to sweeten its offer, said analyst Pat Comack, of Guzman & Co. However, the unsolicited proposal would be difficult to pull off because the broadband division is still a unit of AT&T and not a separate firm.
"AT&T still has a lot of leverage because Comcast can't tender for anything," Comack said.
AT&T is slated to report second-quarter results on July 23. The wireless and broadband units are expected to show improvements, while revenue for the consumer long-distance business is expected to decline.
Poor results will help Comcast in its bid to buy the broadband unit, while an improved showing will boost AT&T stance that it can rejuvenate its business.
However, it is very likely that another offer will emerge.
"AT&T's board is confident that they can do better than $12.60," Comack said. "We could get into a bidding war here."
Goldman Sachs and Credit Suisse First Boston are serving as financial advisers for AT&T. Comcast is using J.P. Morgan Chase, Morgan Stanley and Merrill Lynch. 
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