Comcast Ousts Competition, Wins AT&T Broadband
By Susan Rush
from BroadbandWeek Direct - December 20, 2001
After a five-month bidding extravaganza, AT&T Corp. has awarded Comcast Corp. the grand prize -- AT&T Broadband.
Comcast's bid valued at $72 billion won out over competing bids from two other media giants, AOL Time Warner Inc. and Cox Communications Inc. AT&T will spin off its broadband unit and merge it with Comcast to form the largest MSO in the country. The new company, dubbed AT&T Comcast Corp., will serve more than 22 million subscribers. The No. 2 cable guy, AOL Time Warner, has 12 million subscribers. Ma Bell's board of directors announced the deal late Wednesday night.
"AT&T Comcast will create value for its shareholders and employees by bringing more services to more people more quickly," says C. Michael Armstrong, chairman and CEO of AT&T. "Our shareholders and our employees will both benefit from the industry-leading growth we will achieve."
AT&T shareholders will receive roughly .34 shares of AT&T Comcast for each share of AT&T they own. Comcast shareholders will receive one share of AT&T Comcast for each Comcast share they own. AT&T shareholders will own a 56 percent economic stake and a 66 percent voting interest in the new company.
"Good for AT&T," says Mike Paxton, senior analyst at Cahners In-Stat Group. From Paxton's point of view, the company was able to make a deal and still maintain some control. There is likely to be some head-butting between the Armstrong and Comcast camps. "Comcast is rolling the dice a bit, but 9the move) does prove it wants to be a bigger player in the cable industry."
The fate of AT&T Broadband's 40,000 workers and Comcast's 35,000 employees remains unclear. Some industry analysts are predicting that Comcast will trim some of AT&T Broadband's work force to reduce debt. During a conference call this morning, however, company officials said it is premature to discuss the fate of employees.
Armstrong will make out in the deal as well. Instead of retiring in 2003 as previously announced, he will take over the helm at the new company as chairman. Comcast president Brian Roberts will serve as the new entity's CEO.
The deal, which also encompasses AT&T's 25 percent stake in Time Warner Entertainment, includes the assumption of $20 billion in AT&T debt. Microsoft Corp., which as hell-bent on keeping rival AOL Time Warner from acquiring AT&T Broadband, will convert its $5 billion stake in AT&T Broadband into shares of the new company.
AT&T had originally planned to spin off its broadband unit as an independent company, until it received an unsolicited bid from Comcast for roughly $41 million in July. Although the bid was rejected by AT&T as being too low, it put the unit on the table. Later that month, it was reported that AOL Time Warner was talking with AT&T about a potential bid of its own. In September, Cox entered the fray. In a statement, Cox said it was disappointed with the outcome, but remains confident it will be a "premier provider of voice, video and data services in our communities." A spokeswoman for the cabler declined to comment on the specifics of its bid. AOL Time Warner could not be reached for comment before deadline.
The deal, which is expected to close at the end of 2002, is subject to regulatory approval. "I don't think this deal will face too much opposition, at least not enough to restructure it significantly," says Paxton. Unlike when AOL and Time Warner Inc. were planning to merge, the FCC is now taking a more hands-off approach under the leadership of Michael Powell. "We will have to wait and see what shakes out on Capitol Hill, but I believe we will see at least one more (consolidation) deal in the next 12 months," says Paxton.
The creation of AT&T Comcast puts the pressure on AOL Time Warner to react. "What will AOL Time Warner's next move be? Maybe the company will make a move to acquire another cable company, such as Adelphia," speculates Paxton.
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