Seeking to become the United State’s biggest cable television company, Comcast Corp. made an unsolicited offer yesterday to acquire AT&T;’s cable operation for $44.5 billion in stock.
If successful, such an acquisition would create a cable television giant serving about 22 million subscribers, or about one of every five homes in the United States. While such a deal would be a capstone for the father-and-son team of Ralph and Brian Roberts, who control Comcast, it could end up a humiliating turnabout for C. Michael Armstrong, the former IBM executive who has been the chairman of AT&T; since 1997.
AT&T; has had its share of reversals recently. After spending about $90 billion to acquire the cable powerhouses Tele-Communications Inc. and MediaOne Group Inc., AT&T; announced last year that it intended to break itself into three separate companies with four separate stocks. The spinoff of its wireless business is expected to be completed today. AT&T; is already the nation’s No. 1 cable provider, with about 16 million subscribers, though the company plans to sell systems with more than 2 million subscribers. Comcast is No. 3, with about 8.5 million customers, behind AOL Time Warner.
Both companies are upgrading their systems to offer more TV channels and high-speed Internet access. AT&T; has also been trying to offer local phone service through cable wires, an effort that Comcast is not likely to be enthusiastic about. But AT&T;’s local phone plan has already been cast into doubt by its breakup plan.
AT&T; said yesterday that it had no intention of selling its broadband business but that it would review Comcast’s proposal.
Comcast’s plan would require approval from many regulators, but the biggest legal hurdle has already been lifted. Earlier this year, a U.S. appeals court struck down limits that the Federal Communications Commission had put in place to restrict the size of cable companies.
Since AT&T; announced its breakup plan, Comcast has been privately trying to persuade AT&T; to agree to merge the two companies’ cable operations. AT&T; has refused, apparently fearful that Comcast would take charge of the combined business.
With the unsolicited bid yesterday, Comcast is trying to press Armstrong by presenting its case publicly to AT&T;’s shareholders and board.
“Over many months of discussions we have shared a vision that AT&T; Broadband and Comcast should be combined to create the world’s leader in broadband communications,” Ralph Roberts, the chairman of Comcast’, and his son, Brian Roberts, its president, said in a letter to Armstrong yesterday. “We believed those discussions were progressing toward a tax-free transaction that would dramatically accelerate your own plan to separate the broadband company. It is unfortunate that we were not able to agree on a basis for continuing our dialogue.”
People close to Comcast said yesterday that while Armstrong and Charles Noski, AT&T;’s chief financial officer, were essentially amenable to Comcast’s financial terms, the talks had reached an impasse over “social issues.” “Social issues” in the context of a merger or acquisition usually mean “job issues,” as in who will get which job.
Armstrong has been said to want to run the independent cable company that would be created under AT&T;’s breakup plan. But Comcast would be unlikely to agree to grant Armstrong a substantial role in a merged company. And while Armstrong might have wanted to base a merged operation at AT&T;’s headquarters in Basking Ridge, N.J., or Denver, it was probably inconceivable to the Roberts team to leave Comcast’s Philadelphia headquarters.
People close to AT&T; said yesterday that the previous discussions with Comcast had only been cursory and that the two companies had not agreed on any issues.
Under the terms of Comcast’s offer, AT&T;’s stockholders would receive Comcast stock worth $12.60 for each share they already own. Comcast would also assume $13.5 billion of AT&T;’s debt.
AT&T;’s shareholders would continue to own the company’s telephone and data communications operations, which include the nation’s leading long-distance phone carrier. The AT&T; shareholders would actually own a bare majority, about 51 percent, of the enlarged Comcast. As a group, the AT&T; shareholders would also have bare voting control of the company.
