The combination of Comcast with AT&T Broadband, one of four divisions that would be created by the planned break-up of the US telecommunications giant, would create the largest broadband communications company in the world – serving one in three US cable subscribers.
But the combination would also require a relaxation of US cable ownership limits, as well as clearance by antitrust regulators.
The proposal, in a letter to Michael Armstrong, AT&T’s chairman and chief executive, came after months of serious discussions between Comcast and AT&T came to nothing.
The proposal comes as AT&T is about to begin the break-up it outlined last October. The telecoms company will on Monday distribute its remaining 52% stake in AT&T Wireless, its mobile company, to shareholders, creating a stand-alone entity valued at $42bn.
AT&T is also about to mail to its shareholders the details of the tracking stock it plans to issue, based on its broadband operations. Comcast’s proposal is designed to give AT&T shareholders an alternative to the tracking stock, expected to be a precursor to a full demerger.
Comcast said its offer provided a substantial premium to AT&T shareholders. Comcast would be paying about $4,000 per AT&T broadband subscriber, the company said.
Sources close to the discussions say AT&T and Comcast have been in talks since last November about a possible combination of their broadband interests. But the discussions fell apart after AT&T’s board raised questions about the division of senior jobs in the combined company.
AT&T is also thought to have stepped away from Comcast discussions in part because of Comcast’s stock structure. The company has two classes of stock – voting class and non-voting class. According to a person close to the deal, AT&T was concerned that AT&T shareholders should have voting control over the company.
The proposal covers AT&T’s cable operations and joint ventures such as Excite@Home, its high-speed internet unit. Comcast said it was also prepared to buy AT&T’s stakes in Time Warner Entertainment, Cablevision and Rainbow Media by assuming more debt and issuing more equity. Those interests have been valued at up to $20bn.
Comcast said its proposal valued the broadband business at $58bn – representing 30 times 2000 earnings before interest, taxes, depreciation, and amortisation (ebitda) and annualised first quarter 2001 ebitda.
The combined companies would have a total of 22m broadband customers and would generate savings of at least $1.25bn annually, Comcast said.
Comcast would issue 1.05bn shares at Friday’s closing share price of $41.85. Comcast said AT&T shareholders would receive Comcast shares valued at $12.60 per AT&T share. Shares in AT&T closed at $22.24 on Friday. AT&T shareholders would also retain complete ownership of AT&T historical communications business, Comcast said.
