May 3, 1999 4:00 PM PDT
MediaOne-AT&T deal pushes Comcast aside
MediaOne's board officially accepted AT&T's offer after huddling to discuss the proposal Saturday. In a prepared release, the cable operator called AT&T's $85-per-share offer a "superior proposal" when compared to Comcast's bid.
Comcast now has until Thursday to respond, according to the previous agreement between Comcast and MediaOne.
"By themselves [Comcast] can't match that," said Philip Wohl, a telecommunications analyst with financial publisher S&P Equity Group. "They don't have the cash to deal with that."
Separately, America Online, previously reported to be in talks with Comcast in an effort to revive the firm's bid, reportedly said today that it is no longer pursuing a joint bid for MediaOne. AOL was put off by the financial demands of a joint deal with Comcast, according to financial cable news channel CNBC, citing persons close to the company.
AOL spokeswoman Kathy McKiernan declined to comment on today's reports. Comcast also declined to comment.
Many financial analysts believe AT&T clearly has the upper hand in the battle to acquire MediaOne.
"It's very difficult to see how they can put together a bid," said Douglas Shapiro, a financial analyst with Deutsche Bank Securities. "They could put together another bid, but it would be hard to create a bid that couldn't be topped again by AT&T."
AT&T already has secured $30 billion in financing to support the acquisition.
If Comcast decides not to mount a counteroffer, the company, which serves more than 4 million cable TV customers, would not walk away entirely empty handed. Under the terms of the original agreement, MediaOne is required to pay Comcast a $1.5 billion fee if AT&T or another company acquires it instead.
Comcast has sought the help of high-tech giants Microsoft, with its large cash reserves, and AOL, with its buoyant stock price, to counter AT&T's bid.
Microsoft co-founder Paul Allen, owner of Charter Communications, another cable operator that has recently been on an acquisition binge, also is talking with Comcast, Bloomberg has reported, citing people familiar with the negotiations.
Last week, MediaOne signed confidentiality agreements with Microsoft and AOL allowing them to review the details of the Comcast bid.
"If Microsoft and AOL were serious about helping them buy MediaOne they could put up the cash," Wohl said.
Microsoft, which has a $1 billion investment in Comcast and a stake in MediaOne's Road Runner high-speed Net access service, had $21.8 billion in cash and short-term investments at the end of March, according to its most recent quarterly financial statements filed with the Securities and Exchange Commission.
But AOL's reported departure, if true, would mark another setback for Comcast. An absence of partners such as AOL would significantly hamper Comcast's ability to exceed AT&T in a bidding war, analysts said.
Some analysts have suggested Comcast would be hard pressed to recoup its costs if it were to pay a loftier price for MediaOne's cable networks, making a sweetened Comcast counter offer even more unlikely.
"If anybody can make money with those assets at that price it is AT&T," said Bruce Raabe, a financial analyst at Collins & Co. "Comcast has to take a pretty serious look at that. I'm not sure how much they are willing to spend."
In addition to the issues of cash and total value of the bid, AT&T is offering more control for MediaOne shareholders. The Comcast bid involves issuing hundreds of millions of shares of non-voting stock to pay for MediaOne. That would leave the family of Brian Roberts--Comcast's current CEO--owning less than 2 percent of the company, but with control of about 80 percent of the votes.
It was that disparity that led Amos Hostetter, the former CEO of MediaOne and still a large shareholder, to go to AT&T to solicit that company's bid. And analysts say that Robert's unwillingness to give up control will make any new bid difficult.
"[Comcast] was going to issue 700 million shares in non-voting stock," Shapiro said. "You can not issue voting stock on that scale without losing control. And control is very important [to Roberts]."
What's at stake?
If Comcast is successful in acquiring MediaOne, the merger would create a massive cable operator capable of delivering a variety of digital services to nearly 10 million U.S. customers.
The proposed merger of Comcast and MediaOne would continue a trend toward consolidation and "clustering," the practice of buying or swapping systems in strategic geographic areas to provide more services at a cheaper cost.
Most notable about the deal in question is the companies' stakes in high-speed Net-over-cable providers @Home Network and Road Runner. Analysts have said a Comcast-MediaOne merger could facilitate a shake out in the broadband Net access arena, potentially including a merger between @Home and Road Runner.
Yet AT&T so far has the upper hand. With a purchase of MediaOne, AT&T would continue its push to utilize cable's coaxial networks to deliver local telephony service. Ma Bell is anxious to use cable to skirt the local telephone companies and the billions of dollars it pays the Baby Bells in so-called access charges each year to connect long distance calls over their local networks.
The company acquired Tele-Communications Incorporated earlier this year in a blockbuster deal as a means to that end.
AT&T, already the largest shareholder in @Home, also stands to gain from high-speed Internet and other data revenues.
Losing the battle but not the war?
Even if Comcast does lose the bid for MediaOne, it has won a consolation prize of some value. Over the last week, the company has solidified its relationships with Microsoft and AOL, potential partners of significant value as the cable company moves increasingly into the broadband world.
Analysts say that the talks with AOL are unlikely to bear the kind of fruit that AOL would most like--the ability for the online services giant to use cable networks for its own service. As a partner in @Home, the two company's Net goals are in direct conflict, Shapiro said.
But the goal of Microsoft, AOL, and Charter Communications owner Paul Allen--which has reportedly talked to Comcast--to gain larger footholds in the cable industry could match Comcast's desire to expand, and Roberts' new relationships with the outside players could be parlayed into future ventures, analysts said.
Microsoft is in talks with AT&T about MediaOne's international assets, CNBC reported.
"It doesn't hurt to have AOL and Microsoft in your back pocket," Raabe said. "It wouldn't surprise me if Comcast kept looking and AOL and Microsoft will likely be interested in other deals for the same reasons."
What those ventures could be is uncertain, however, since there are few independent cable operators of any scale left on the market.
The last large cable player, Cox Communications, is not generally viewed as being willing to give up control, leaving few significant expansionary options for Comcast outside of MediaOne, analysts said.
"It's very possible that [Comcast] will send a signal that this was a once-in-a-lifetime opportunity," Shapiro said. "This is a game of musical chairs, and there are no chairs left."
Bloomberg contributed to this report.