The Financial Times on the Comcast/MediaOne announcement:
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Americas March 23 1999
Comcast to buy MediaOne for $60bn
Stock and debt deal may speed delivery of digital services writes Christopher Parkes in Los Angeles
Comcast, a leading cable television operator part-owned by Microsoft, is to buy rival MediaOne in a $60bn stock and debt deal that may help speed the delivery of a wide range of electronic services to US homes.
Following completion of the purchase of Tele-Communications Inc by AT & T, the long-distance telephone group, it marks a further stage in the rapid consolidation of the national network of two-way pipelines providing television, telephone and internet signals.
The acquisition, which includes assumption of $7bn of MediaOne debt, is the cable industry's biggest to date, and will bring Comcast's subscriber total to 11m, drawing services from a network that passes almost 20 per cent of US homes. It will also combine entertainment and electronic commerce assets, which include Comcast's QVC television and online shopping networks, sports teams and the E! entertainment network.
MediaOne, spun off in 1997 from the US West regional telephone company, also owns 25 per cent of Time Warner Entertainment, a division with assets including large cable systems, the HBO TV services and the Warner Bros film and television production studio.
Group executives said they expected to resume negotiations to form a joint venture with AT & T, which is bidding to use cable to bypass regional telecoms companies' expensive connections to the residential market. But they also suggested they may be able to provide telephone services from their resources.
Yesterday's announcement prompted a sharp rise in cable company stocks as investors read the move as a cue for more consolidation and higher valuations.
Prices of cable companies have risen steeply in the past two years, climbing from the equivalent of about $2,000 per subscriber to $3,500. Comcast's valuation, for example, has increased almost 90 per cent in the past year. The company is seen as one of the more aggressive investors in fibre optic systems, which give cable the broadband capacity to compete with satellite delivery systems such as DirecTV.
Comcast expects shortly to be able to offer digital cable services to 65 per cent of its customers, allowing them two-way services and "always-on" high-speed access to the internet.
The companies last year had combined revenues of $8bn and operating cash flow of $2.4bn.
Under the deal, MediaOne shareholders will be offered 1.1 Comcast shares, 32 per cent premium to Friday's closing price. Although MediaOne shareholders will own most of the new group, the most senior jobs will be filled by Comcast executives. Microsoft's Comcast holding, an 11.5 per cent stake bought for $1bn in 1997, will be reduced to about 5 per cent, the company said. Christopher Price in London reports: The merger prompted speculation on the future of two of MediaOne's UK investments: Telewest Communications, the cable operator, and One-2-One, the mobile phone company.
Shares in Telewest, in which MediaOne holds a 29.9 per cent stake, rose 15¾p to 253¼p on the news. Comcast sold its Comcast UK cable business last year to NTL, leading to speculation yesterday that it would not want to be in the market again.
Potential buyers of the MediaOne stake include NTL and Cable and Wireless Communications. The stake is valued at about £1.8bn.($2.9bn).
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