In a bold move that underlines its telephony over cable strategy, AT&T Corp announced a $62.5bn cash and stock bid to acquire cable company, MediaOne Group outbidding the existing $60bn bid for the cable operator made by Comcast Corp late last month. Formerly owned by regional Bell operating company, US West Inc, AT&T will use the MediaOne network to offer telephony services in direct competition to its former parent. Unlike Comcast, AT&T is offering cash, as well as stock. AT&T said it would pay $30.85 in cash, subject to upward adjustment, and 0.95 of a share of AT&T common stock, for each share of MediaOne common stock, value of $87.375 per MediaOne share based on yesterday’s closing prices.
AT&T waited until after the markets closed before announcing the deal. Should the bid be successful, MediaOne, the third largest cable TV company in the US will significantly extend the reach of AT&T’s cable network acquired when it closed its $55 acquisition of Tele-Communications Inc in March (03/10/99). According to AT&T, the offer represents a 17%, or $8.6bn, premium to Comcast’s offer based on Comcast’s closing price yesterday of $66.1875. It is also a 44% premium to the trading price of the MediaOne shares prior to the agreement with Comcast and a 26% premium to yesterday’s MediaOne closing price. In a letter to MediaOne CEO Charles Lillis, AT&T CEO Michael Armstrong added that the future value of the AT&T shares we are offering, which are voting, cash dividend-paying shares, is far greater and more reliable than the non-voting, non-cash dividend- paying Comcast shares.
Should AT&T succeed, MediaOne’s Denver-based operations will be rolled into AT&T’s Denver-headquartered Broadband & Internet Services business reporting to former TCI CEO Leo Hindery. AT&T said it would issue 626 million additional shares in order to carry through the transaction which would overall mean a dilution in the company’s earnings per share of 30 cents in the first full year of combined operation. It added it would expect the deal to close before the end of the year. AT&T also said it would sell off parts of the MediaOne business for between $18bn and $20bn and that it would enjoy saving of up to $200m from synergies in combining the former TCI and MediaOne cable operations.
The deal is sure to draw the attention of the regulators, although AT&T said it does not expect the deal to encounter significant legal obstacles. Although AT&T won clearance for its acquisition of TCI, the largest cable operator in the country, it may not be so easy to acquire another. AT&T already has a deal to offer its services exclusively over the second largest operator’s network, Time Warner Inc. Landing MediaOne would give AT&T exclusive access to the three largest cable networks in the US at present for its broadband bundled telephony, internet connection and cable TV services.
