April 23, 1999 7:10 AM PDT
AT&T makes surprise bid for MediaOne
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Comcast buys MediaOne in $60 billion dealMarch 22, 1999
AT&T offered to pay approximately $62 billion in cash, stock, and assumed debt for the Denver-based cable company, exceeding Comcast's previous bid at current share values, according to the long distance giant.
Comcast's original bid for MediaOne in March was close to $60 billion. But the company's stock has fallen since that time, decreasing the value of its offer.
Less than one year after being spun off from local phone giant US West, MediaOne has found itself in the middle of a high-profile bidding war that underscores today's value of cable operators and their broadband networks.
"Americans have been waiting for someone to run another wire to their homes to give them a choice in local phone service and deliver the advanced services they expect in a competitive market," said AT&T chairman C. Michael Armstrong in a statement announcing the bid.
"Our earlier acquisition of Tele-Communications Incorporated and now our proposal for MediaOne Group should leave no doubt that we are serious about doing just that," Armstrong said.
The bid includes $4.5 billion in assumed debt and preferred equity, according to AT&T.
The offer was made in a letter sent to MediaOne executives yesterday. AT&T said it had worked to develop the bid with Amos B. Hostetter, the former CEO of US West Media Group, which was once MediaOne's parent.
Wall Street, media executives, and others in the Internet industry have quickly recognized the potential of cable to carry voice and data in addition to traditional video programming, making cable companies such as MediaOne ground zero in the so-called the convergence game.
AT&T's bid would include more than $30 in cash and 0.95 shares of AT&T stock for each MediaOne share. Based on AT&T's closing price yesterday, the cash and stock offer has a value of $87.375 per MediaOne share, according to AT&T.
"We can bring value to [MediaOne's] infrastructure just as we explained we could bring value to the TCI infrastructure," said Armstrong in an interview this morning on Bloomberg TV, referring to MediaOne's assets strategically located across the United States. Amstrong added that the deal would also enhance AT&T shareholder value.
"With the digital revolution coming to the cable industry, coming to communications, this facilities-based infrastructure--along with the AT&T brand and the capital we are going to put behind [MediaOne]--can bring our shareholders greater growth."
Amstrong forecast a 10 to 12 percent growth, with cash flow improving about 20 percent.
MediaOne, which had already accepted its cable peer's buyout offer last month, would say little about the offer yesterday. "The proposal is currently under review," said MediaOne spokesman Dave Wood. "We have nothing to add at this time."
Comcast's proposal gave MediaOne the right to entertain--but not solicit--other offers during a 45-day window, set to expire May 6. If it accepts another proposal, MediaOne would be requried to pay Comcast a $1.5 billion fee.
"Now we have two on the table," Wood said.
Armstrong, appearing on Bloomberg TV, said he called MediaOne chairman and chief executive Chuck Lillis last night to gauge a response. Lillis told Armstrong he will try to meet with the company's board as soon as possible.
"I am anxious to hear from [Lillis] as soon as possible," said Armstrong. "I appreciate their having a contract right now with Comcast and have to get their advisors together."
If MediaOne executives agree to the deal, AT&T would vault far ahead of its nearest competitor, Time Warner cable, as the largest cable company in the nation.
Its acquisition of TCI, completed in late March, gave it nearly 11 million subscribers. The addition of MediaOne's base of five million customers would bring it close to 16 million subscribers.
Phones, cable, and high-speed Net
AT&T is on a drive to provide local telephone service to as many households as possible, ideally though cable TV lines.
Its TCI acquisition, along with a deal with Time Warner cable, will give AT&T close to 40 percent national coverage. But Armstrong has said his goal is close to 65 percent coverage. To reach this, the company will have to be able to cover subscribers from Comcast, MediaOne, and Cox Communications, the third, fourth and fifth-largest U.S. cable companies.
Striking a deal with MediaOne would bring AT&T significantly closer to this goal, and potentially eliminate one additional obstacle. MediaOne is one of the largest shareholders in Time Warner cable, and must approve the cable telephony deal between AT&T and Time Warner.
The acquisition also would give it a strong new hold on the high-speed cable Net market.
Armstrong expects the acquisition's impact on AT&T's earnings to be less than that of the TCI acquisition.
"The TCI dilution was 26 or 27 percent," said Armstrong on Bloomberg TV. "First of all the dilution issue will be offset by a significant cost reduction program we have already put in place."
Armstrong also noted that AT&T announced that they will sell nonstrategic assets and be able to generate higher revenue growth from the [MediaOne] infrastructure.
"When you put all that together in an equation, that is why there is considerably less dilution," Armstrong said.
AT&T will be announcing its earnings on Tuesday at which time Armstrong plans to explain what AT&T is doing to realize the growth and potential of its cable investments.
"I believe you will see in our earnings report that we are indeed executing against this potential," Armstrong said on Bloomberg TV.
This would likely add fuel to arguments by AOL and consumer groups that the cable networks should be opened to all ISPs--much as ordinary phone lines are today--lest companies like AT&T be given a monopoly over cable Internet service.
MediaOne is primarily located in the Northeast, including Massachussetts and New Hampshire. The company, the nation's third-largest cable operator, also has significant holdings in Atlanta, Detroit, Los Angeles, as well as Florida and central California.
News.com's Sandeep Junnarkar contributed to this report.