Comcast Launches Battle For AT&T
By CHRISTINE NUZUM
Of DOW JONES NEWSWIRES
(This story was originally published late Monday.)
NEW YORK -- Comcast Corp. (CMCSK, CMCSA) has between now
and the spin off of AT&T Corp.'s (T) broadband division
into a tracking stock to convince AT&T shareholders that
its proposed merger of the unit represents a better deal for
Comcast launched its appeal last night, releasing to the
public a letter to AT&T Chairman C. Michael Armstrong in
which it proposed to buy AT&T Broadband for $58 billion.
AT&T has said they are evaluating the proposal, but
currently have no plans to act on it.
With AT&T unreceptive to the idea and the burden of the
parent company's telecom business undoing the feasibility of a
hostile takeover, Comcast's remaining path to a tax-free deal
may be to persuade shareholders that the merger is a better
option than the IPO.
While Wall Street has heralded Comcast's offer as
attractive, it represents a large discount to the $100
billion-plus that AT&T paid for its assembly of cable
assets, gained from major acquisitions of MediaOne and
Tele-Communications Inc. Accepting the offer would represent a
concession that AT&T overpaid for those assets.
"I'm afraid that corporate egos may mean that AT&T may
decline (Comcast's merger proposal) unless it's a lot higher
than it presently is," said Drake Johnstone, an analyst with
Davenport & Co.
After AT&T Broadband goes public, a merger may be less
attractive to Comcast because of taxes. However, if Comcast
were to pursue a hostile takeover before the spin, it would
have to bid for the whole company, whose debt and slow-growth
telecom businesses might be hard to sell.
Comcast left the door open for a sweetened bid, saying it
might offer additional equity and debt assumption for
AT&T's minority stakes in Cablevision Systems Corp. (CVC),
Rainbow Media, and Time Warner Entertainment, which is 75%
owned by America Online Inc. (AOL). Comcast said it would
eventually seek to sell those assets.
However, Johnstone thinks Comcast is unlikely to make the
kind of offer AT&T might accept, which he estimates at $75
billion to $85 billion.
Proposal Posted On Web Site
If a majority of AT&T shareholders vote against the
broadband tracking stock, AT&T may be forced to accept a
merger. Publicly touting its track record on improving the
profitability of acquired systems as evidence it will be able
to turn around AT&T, Comcast has taken its bid out of the
drawing room and directly to shareholders in the hopes that a
definitive price will be more attractive than the uncertainty
of an initial public offering.
Some industry observers say Comcast's efforts will go
"Although it is plausible Comcast can influence the vote,
such a vote could be months away," wrote analyst Floyd
Greenwood of Prudential Securities. "We believe Comcast will
be fighting an uphill battle as time is mainly on AT&T
AT&T hasn't set a date for the vote on the tracking
stock, and can wait out any change in shareholder sentiment,
Pressure from institutional shareholders may not be
sufficient to force AT&T's hand. The company has 5 million
shareholders, and, according to Salomon Smith Barney, retail
investors own more than 50% of AT&T shares.
Comcast appears to be making every effort to publicize the
proposal, which was posted at the top of the company's Web
But the broad ownership of AT&T shares makes it
particularly difficult for an outside company to convince
shareholders to vote against a company proposal, according to
Nicholas Economides, a
professor at New York University's Stern School of Business.
Comcast would have to offer a premium of 30% to 40% to
convince enough retail investors to take an interest in
rejecting the tracking stock proposal, he said.
AT&T declined to comment on what sort of offer the
company would accept for the broadband unit.
Comcast officials could not be reached for comment.
-Christine Nuzum; Dow Jones Newswires; 201-938-5172;
Briefing Book for: AWE | CMCSA | CMCSK | T