Comcast Bid Seen As Another Setback For
By MARCELO PRINCE
Of DOW JONES NEWSWIRES
NEW YORK -- Comcast Corp.'s (CMCSA) unsolicited bid to buy
AT&T Corp.'s (T) cable-television division marks the
latest setback for the telephone icon's beleaguered leader, C.
Not only does Comcast's overture, made public Monday, throw
a wrench into AT&T's breakup plans, but it threatens to
steal away the division that Armstrong reportedly wants to run
once the restructuring is completed.
"This is a big no confidence vote on AT&T's cable
strategy" and Armstrong's tenure, said Scott Cleland, chief
executive of the Precursor Group, an independent research firm
Fresh from a successful stint at Hughes Electronics, the
outgoing and confident Armstrong enjoyed a hero's welcome when
he took over the helm of a wilting AT&T in November 1997
and proclaimed he would transform the century old
long-distance giant into a broadband behemoth.
But the luster on Armstrong's star has faded in the last
two years as his gamble to acquire cable-TV companies and
provide a bundled voice, data and Internet services over cable
lines proved too costly for AT&T's shrinking long-distance
AT&T shares, among the most widely held in the U.S.,
have declined 22% since Armstrong took the reins, compared
with a gain of 22% for the broader stock market, as measured
by the S&P 500 Index.
"The failure of his strategy has been apparent through the
incredible stock-price drop that has been occurring," said
Brian Bruce, director of global investments for PanAgora Asset
Management in Boston, which owns AT&T shares.
Comcast's $58 billion bid for AT&T Broadband, which
values the unit at half what Armstrong spent to build it,
"cements the fact that he overextended himself," Bruce
Now Armstrong finds himself facing some of the same
criticisms lobbed at Robert Allen, his predecessor at
AT&T. Allen's muddled strategy, which included the
spin-off of its profitable equipment-making unit, Lucent
Technologies Inc. (LU), and a foray into the computer-making
business, were blamed for Ma Bell's earlier woes.
Armstrong's tenure at AT&T has been marred by shifting
strategies -- first spending too heavily to make acquisitions
then moving too late to spin off units and breakup the company
-- and an inability to execute on those plans, his critics
Hoping to reduce its reliance on the shrinking
long-distance business, Armstrong paid $115 billion and
assumed $61 billion in debt to become the largest cable
operator in the U.S. But upgrading those networks to provide
bundled services prove more costly and challenging than
anticipated and AT&T's financial results deteriorated.
"Armstrong bet the farm on the cable convergence strategy
and it turned out to be a very bad bet to the tune of tens of
billions of dollars of shareholder value," said Cleland.
In a bid to retire some of the debt assumed in the cable
acquisitions and boost shareholder value, Armstrong spun off
the fast-growing wireless division, AT&T Wireless Group
(AWE), and later unveiled plans for a bold breakup of the
company into four parts.
Armstrong was chairman and CEO of Hughes Electronics for
four years before taking the reins of AT&T. At Hughes, he
succeeded in spinning off the shrinking defense business and
made it a leader in the burgeoning satellite television
And some are supportive of his efforts to revive AT&T.
They say Armstrong's vision for bundled services, though
costly near-term, is the right long-term move and Comcast's
hostile bid confirms that Wall Street failed to recognize the
value of the different parts of AT&T.
"In some sense getting a high bid for pieces of the
company, such as today is vindication to Armstrong" and his
breakup plan, said Nicholas Economedies, an economics
professor at New York University's Stern School of Business.
"It shows the company is worth more in pieces than
Then again, Armstrong was the one who brought the pieces
together in the first place.
-Marcelo Prince, Dow Jones Newswires, 201-938-5244
Briefing Book for: CMCSA | CMCSK | T