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AT&T, Comcast Deal Boosts Stock

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By Pradnya Joshi

December 21, 2001

AT&T Corp. shareholders breathed a sigh of relief yesterday as the battered stock rose more than 6 percent to close at about $17.85 a share on the news that the company agreed to merge its cable-TV unit with Philadelphia-based Comcast Corp.

As part of the deal Wednesday evening, AT&T shareholders will receive about 0.34 shares of the new AT&T Comcast Corp. for each share of AT&T they own, giving them a 66 percent stake in the new company. Based on Comcast's closing price on Wednesday, that stake is worth about $13.09 a share for every AT&T share.

While Comcast's stock fell about 6 percent in trading yesterday, analysts and company executives say the merger will make sense in the long run and will bring more value to shareholders in both companies. "This helps to undo a lot of the problems that people have been pointing to," said telecommunications analyst Jeff Kagan.

The deal also allows AT&T chairman C. Michael Armstrong to save face in light of criticism about his strategy of moving AT&T into new technologies and services. Since 1998, under Armstrong's leadership, AT&T invested more than $100 billion to buy and upgrade cable-TV systems so that they could provide high-speed Internet, telephone and other new services to consumers. However, AT&T took on billions of dollars in debt and faced stiff competition from all fronts. And this year, the entire telecommunications industry has been battered due to the slump in the technology sector and the recession. Since last year, the stock has see-sawed, but it is still considerably lower than the $40 to $45 a share AT&T was trading at in much of 1999, before Armstrong announced a plan to break the company into four parts.

"I'm not only satisfied, I'm excited about this outcome," Armstrong said yesterday. "I really believe it's an affirmation of the strategy that we started on."

Comcast initially made an unexpected bid for the AT&T Broadband unit last July, but AT&T's board had rejected that as inadequate. In the end, Comcast increased its offer by 15 percent, making the price about $4,500 for every AT&T Broadband subscriber.

The new AT&T Comcast will probably not start operating as a combined company until the end of 2002, but the executives expect to achieve $1.25 billion to $1.95 billion annually in cost savings and extra revenues as a result of the merger.

"AT&T will be able to give you a number of [telephone] lines from one cable connection at a very small cost," said Nicholas Economides, an economics professor at New York University's Stern School of Business.

The AT&T Wireless business was already separated out as its own stock earlier this year. Once the AT&T Comcast deal goes through, the remaining businesses will be AT&T Consumer, which provides long-distance, Internet and local services to residential customers, and the AT&T Business unit, which provides various telecommunications services to corporate clients.

Copyright 2001, Newsday, Inc.

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