Industry news:
March 22, 1999
Comcast to Buy MediaOne
In $48.45 Billion Stock Deal
An INTERACTIVE JOURNAL News Roundup
Comcast Corp. agreed to acquire MediaOne Group Inc., combining two of the largest U.S. cable companies in a stock-swap valued at about $48.45 billion, plus the assumption of debt.
The combined company, which unites the third- and fourth-largest domestic cable providers, would become the third-largest cable company in the country after Time Warner Inc. and AT&T Corp.'s Tele-Communications Inc. unit. Including the assumption of debt and purchase of preferred stock, the deal has a total value of roughly $60 billion, the companies said on Monday.
The merged company would have 11 million subscribers, ranking it behind Time Warner with 13 million and TCI with 12 million, according to Paul Kagan, who heads a media consulting firm that bears his name.
"This is a breathtaking moment in the history of Comcast," said Brian L. Roberts, president of the Philadelphia company. "The new company will have the size and scope to lead the evolving broadband environment. Our cable properties are geographically complementary and should provide the opportunity for meaningful revenue enhancement and operating synergies promptly after closing," he said.
In recent years the cable industry has been swept by consolidation, the benefits of which include, among other things, the ability to buy programming at lower cost. The mergers also let cable companies operate cable systems in the same geographic areas more efficiently.
The deal also ties together partners in two separate high-speed cable-Internet services. Comcast was an early partner of TCI-backed At Home Inc., while MediaOne is part of the Road Runner consortium, along with Time Warner and technology heavyweights Microsoft Corp. and Compaq Computer Corp.
AtHome and Road Runner don't compete gainst each other for customers -- their coverage areas don't overlap. The two cable-Internet firms have discussed merging, but At Home's skyrocketing stock-market valuation has made negotiations difficult.
Comcast Chairman Ralph J. Roberts will remain chairman of the combined cable company and Brian Roberts will be president of the combined company. MediaOne President and Chief Executive Chuck Lillis will serve as a vice chairman and join the Comcast board along with three additional designees from MediaOne, bringing the total number of directors to 14.
Shareholders of MediaOne, based in Englewood, Colo., would own about 64% of the combined company, the companies said. The proposed merger is subject to the approval of MediaOne and Comcast shareholders as well as federal regulatory authorities.
Under the agreement, each MediaOne shareholder will receive 1.1 Comcast Class A special common shares for each MediaOne share, valuing the MediaOne shares at $80.1625 each, based on Comcast's Friday closing stock price of $72.875. The offer represents a premium of about 32% to MediaOne's Friday closing price of $60.75. MediaOne had 604.4 million common shares outstanding during the fourth quarter of 1998.
On a pro-forma basis, the combined company would have had more than $8 billion in 1998 revenue. In addition, it would have had earnings before interest, taxes, depreciation and amortization of about $2.4 billion and a capitalization of almost $97 billion, the companies said.
The merger agreement prohibits MediaOne from soliciting competing acquisition proposals. MediaOne would have to pay a $1.5 billion fee to Comcast if it were to strike a deal with a different company.
In addition to cable systems, Comcast owns E! Entertainment Television, QVC and Comcast-Spectacor, a sports unit that owns two professional sports organizations: the Philadelphia 76ers basketball team and the Philadelphia Flyers hockey team. MediaOne primarily operates cable and telecommunications networks and wireless communications.
Salomon Smith Barney acted as financial advisor and provided a fairness opinion to Comcast. Lehman Brothers Inc. acted as financial advisor and provided a fairness opinion to MediaOne.
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