By Nick Patience
Once AT&T Corp got cable company MediaOne Group Inc between its teeth it was unlikely to let go, no matter how high the bidding got. Over the last few days it secured the agreement it wanted to acquire MediaOne, avoiding the bidding war after Comcast Corp tamely backed away and agreed to take a few hundred thousand cable customers off AT&T’s hands at the going market rate. AT&T finalized its deal to acquire MediaOne yesterday in a cash and stock deal worth around $59bn, based on AT&T’s closing price Thursday. Chief executive Michael Armstrong says it will be the company’s last big cable purchase, wary that federal regulators probably will not find further acquisitions digestible and anyway, he says, none of them are for sale. However, there will be further swap deals to cluster the cable systems, he says.
Microsoft Corp appears to be the pivotal player behind the scenes, first flirting with Comcast late last week raising the prospect that it would join it in a bidding war with AT&T for MediaOne, then taking a $5bn stake in Ma Bell in return for ensuring that it uses Microsoft operating systems as the basis for the set-top boxes that will deliver TV, telephone and other services over its newly-acquired cable lines. AT&T CEO Michael Armstrong would not discuss any relationship with Microsoft but made clear that any technology deal regarding the set-top boxes will not be exclusive: it will be a multi-vendor environment for both hardware and software, he said. Tele- Communications Inc, the nation’s largest cable company that is also owned by AT&T has an agreement to use both Microsoft and Sun Microsystems Inc’s Java technology in its set-tops.
In terms of raw numbers, Comcast and AT&T are swapping a few cable systems with Comcast ending up with a net gain of about 750,000 subscribers. It is paying AT&T about $4,550 per subscriber, or between $3.0bn to $3.5bn in total. However, that is offset slightly by the $1.5bn it will get from MediaOne for breaking its original merger agreement, which was signed in March. Comcast also gets an option to purchase an additional 1.25 million subscribers, worth about $5.7bn, minus debt and other liabilities over the next three years. Comcast says it can pay for them in a variety of ways, including Comcast stock, or some of the AT&T stock it owns. AT&T says it is proposing to pay about $4,600 per subscriber for MediaOne and notes that the average price paid for the TCI and MediaOne deals would be about $3,400. AT&T says the deal with Comcast will be accretive in fiscal 2000 to the tune of about $0.04 per share.
Perhaps the key point of all this rivalry between the would-be competitors for MediaOne’s affections is that Comcast has agreed to offer its cable customers AT&T-branded telephony in all of its markets once AT&T has completed agreements with two other unnamed cable systems. They are likely to be offered the whole range of AT&T’s services and Comcast would not promote any rival long distance carriers to its customers.
Comcast is passing cable systems to AT&T in areas including Richmond, Virginia, Atlanta, Sacramento, Chicago, Colorado and suburban Pittsburgh and gaining systems in Michigan, Florida, Pennsylvania, New Jersey, Baltimore and New Mexico. The cable systems that Comcast will have the option of buying include Lenfest Communications, which AT&T acquired on Tuesday and some of them are around Comcast’s base in Philadelphia.
