FYI, New York Times article on possibility that the AT&T and TCI
merger will fall apart, that probably would not be good for
our ATHM shares:
nytimes.com
I think a 'free' registration is needed to read it, so here it is:
AT&T and TCI Deal Is Scaring the Arbitragers
By GERALDINE FABRIKANT
The chaotic stock market has sparked fears that some companies'
merger plans will fall apart and has created additional risk for traders
who specialize in takeover stocks.
Perhaps the biggest unknown for such traders, known as arbitragers, is AT&T's
pending acquisition of Tele-Communications Inc. On June 24, AT&T agreed to
swap 0.7757 of its shares for each share of Tele-Communications, valuing the
transaction at $31.8 billion.
Since then, AT&T's stock has fallen nearly 20 percent while
Tele-Communications' stock has fallen 13 percent.
TCI shareholders now stand to get just $40.24 worth of AT&T stock for each of
their shares, down from $49.60 at the time of the announcement.
TCI's stock closed Thursday at $33.75, and AT&T's at $51.875.
In stock swaps, arbitragers buy stock in the company being acquired,
anticipating that the price will rise over time. Because stocks of acquirers
usually fall, the arbitragers typically short that stock, meaning they sell
borrowed shares hoping to replace them later at a lower price.
In the TCI deal, arbitragers see plenty of merger skepticism in the stocks'
recent behavior. In the week just after the announcement, TCI's stock moved up
toward the indicated value of AT&T's offer. But since the end of June, the spread
between TCI's stock price and the indicated value of the deal has widened,
instead of continuing to shrink.
Some arbitragers say they are worried that TCI's mercurial chairman, John
Malone, will lose enthusiasm for the merger. Indeed, Malone has a history of
renegotiating pacts. It was his tinkering with the terms of the company's 1994
planned merger with Bell Atlantic that finally scuttled that deal.
Faced with a shriveling AT&T stock price, Malone might ask for revised terms or
back out, the traders fret.
A TCI spokeswoman said Thursday that the merger was proceeding as
planned and was expected to be concluded in the first half of 1999. Ray Katz,
an analyst at Bear, Stearns, sent a note to clients on Wednesday saying he expected the deal to be completed.
Some arbitragers actually are happy to see a decline in TCI's stock. They can buy more and if the deal is done at the previously
announced price, they will lock in a bigger profit.
That, however, is a big "if." Forecasting the outcome is exceedingly risky in a
roller-coaster market. Many arbitragers are edgy after the recent renegotiation
of Tellabs' deal for Ciena Corp. In June, the stock swap valued Ciena at $65.88
a share, or $7.1 billion. Ciena later warned that its third-quarter earnings would
disappoint and that AT&T would not give it as much business as anticipated.
Tellabs subsequently lowered its price to $4.74 billion, or $46.25 a share, for Ciena.
"Up until the last minute, traders were getting comfort from the companies that
the deal was on track," said one arbitrager, who requested anonymity. "That has really spooked them."
More than the stock deals, the cash deals that have been announced in recent
months are weighing heavily on arbitragers' minds. These are the deals that
have been damaged the most by the stock market swoon, said George Kellner,
a partner at Kellner DiLeo, a merger and convertible arbitrage firm.
"The spreads all over the place are wider than you can get a truck through,"
Kellner said. "There is a fear that the buyer will see what is going on and
attempt to renegotiate and buy the target company at a cheaper price."
Take Hercules' planned purchase of Betz Dearborn. Hertz offered $72 a share
at the end of July, and Betz' stock immediately soared to $67.6875. Since then,
Betz' stock has fallen to $62.4375, meaning paper losses for anyone who
bought on the news and held pending the deal's completion. Since the deal
was for cash, arbitragers had no reason to short the stock of Hercules. So even
though Hercules stock has fallen about $10 to $27.75, they are unlikely to have
anything to offset the Betz losses if the deal comes undone or is renegotiated.
AT&T Appointments
AT&T Corp. said Thursday that it had appointed Robert Annunziata president of
the company's $22 billion business-services group, which provides voice and
data services to corporations.
Annunziata, 50, was formerly chairman and chief executive of Teleport
Communications Group, which AT&T bought in July for $11 billion.
AT&T also appointed Frank Ianna president of a new network-services unit. He
will be responsible for AT&T's local, long-distance and wireless networks,
including the former Teleport's operations. Ianna, 49, was formerly executive
vice president responsible for AT&T's long-distance network operations.
Ianna and Annunziata's appointments are effective immediately, AT&T said. |
