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AT&T cable tracker alive
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August 13, 2001: 3:12 p.m. ET
Plans for broadband tracker still alive, telecom shops unit to Microsoft, Disney
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NEW YORK (CNNfn) - AT&T Corp.'s attempts to shop its cable business to various parties reveal that the nation's top phone company is looking at all options and could still opt to float a tracking stock of the broadband unit, analysts said.
AT&T has apparently held meetings with Microsoft Corp. and Walt Disney Co. as potential suitors for its cable TV business. But if AT&T Corp. CEO C. Michael Armstrong fails to secure another bid for the cable business, the company may choose to still launch an IPO of the broadband unit, analysts said.
By addressing all inquiries, Armstrong could make a case to AT&T shareholders that the tracking stock is still the best option, analysts said.
"[AT&T] could do this tracking stock if they said they explored all alternatives," said Pat Comack, of Guzman & Co.
"If another bid does not emerge for AT&T Broadband, the company is likely to proceed with a tracking stock," added analyst Drake Johnstone, of Davenport & Co.
In July, AT&T rejected Comcast Corp.'s $45 billion bid for the cable business and simultaneously decided to delay finalizing and mailing the proxy materials for its restructuring. The plans would have called for AT&T to split into four separate companies and launch an IPO of the broadband unit before the end of the year, pending shareholder approval. The broadband unit, which would have traded as a tracking stock, would then be spun off as an asset based security within 12 months.
Those plans looked to still be viable as AT&T (T: up $0.33 to $19.91, Research, Estimates) CEO Michael Armstrong met Friday with Microsoft (MSFT: up $0.31 to $65.83, Research, Estimates) and Disney (DIS: down $0.16 to $27.24, Research, Estimates) as part of a road trip to find buyers for AT&T Broadband, sources told the Wall Street Journal.
A person familiar with the situation said Monday that AT&T is in the process of responding to various "overtures." However, talks with the parties are still preliminary, the source said.
"I'm sure every option is still alive at this point," said analyst Tim Horan of CIBC World Markets.
Comcast still in running?
AT&T CEO Armstrong may be shopping the broadband unit as a way to lure Comcast into making a higher bid. But the two companies have yet to resume negotiations, a person familiar with the negotiations at Comcast told CNNfn.com.
AT&T Corp. refuses to speak to Comcast until the Philadelphia-based cable operator signs a confidentiality agreement, the source said. Such an agreement, typical in an auction process, prevents Comcast from discussing AT&T's financial information.
But a condition contained in the agreement, the "standstill," is blocking negotiations. The "standstill" prevents a would-be acquirer – in this case, Comcast (CMCSK: down $0.12 to $37.63, Research, Estimates) – from attempting a hostile bid if it is rejected.
Both AT&T and Comcast declined to comment.
Earlier this month, Comcast President Brian Roberts called AT&T's Armstrong in a bid to restart negotiations between the two firms. But the phone conversation resulted in the confidentiality agreement that Comcast refuses to sign, the source said.
"They're not going to talk to us in any real way unless they have the confidentiality agreement," the Comcast source said.
However, a source at AT&T said that the confidentiality agreement does not contain a standstill. In fact, the pact is standard and is only an attempt to prevent collusion.
AT&T hopes to prevent Comcast from convincing other companies to stay out of the bidding process by promising systems or preferential carriages, the source said. Other companies interested in the broadband business have signed the agreement, the person said.
"AT&T is not going to pass confidential information unless they simultaneously protect AT&T shareholders," the source said.
Options for the cable unit
AT&T is seeking competitive offers to Comcast's bid, which it considered cheap and poorly structured. Options AT&T is considering include finding investors to sponsor a spinoff of the broadband unit, merging its cable business with AOL Time Warner Inc.'s cable business, striking a deal with another firm such as Cox Communications Inc., or issuing a tracking stock, the paper said. AOL Time Warner is the parent of CNNfn.
Microsoft, Disney, and AT&T declined to comment on the Journal report.
If AT&T goes with the spinoff option, the investor would exchange cash for equity in AT&T Broadband. Disney is reportedly one of the possible investors.
Disney also could combine its cable networks with AT&T's, followed by a public offering of AT&T Broadband. Investors would find that more appealing, since it would make the company more competitive with AOL Time Warner (AOL: down $1.31 to $42.99, Research, Estimates), the Journal reported.
Late last month, CNNfn.com reported that Disney may take part in a bid for AT&T Broadband.
An AOL partnership would draw the attention of Microsoft, its biggest competitor. Microsoft is likely to invest in AT&T's cable business, or find a bidding partner such as Comcast, in which Microsoft has a $1 billion investment, according to the report.
Comcast is not likely to give up without a fight. The company could find an investor to help boost its bid, or restructure the deal more to AT&T's liking.
But the No. 3 U.S. cable operator is not about to sweeten its $45 billion bid for the AT&T Broadband unless another company comes in with a better offer.
"We put on the table a fair price," the Comcast source said. "If [AT&T] can get more money from someone else then go for it. Why would we bid against ourselves?" 
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