AT&T: Broadband or bust
AT&T makes surprise bid for MediaOne
By John Borland and Corey Grice
Staff Writers, CNET News.com
April 22, 1999, 4:00 p.m. PT
update Long distance giant AT&T today made a surprise bid for cable company MediaOne, hoping to disrupt last
month's merger agreement between MediaOne and Comcast.
AT&T offered to pay approximately $62 billion in cash, stock, and assumed debt for the Denver-based cable company,
exceeding Comcast's previous bid at current share values, according to the long distance giant.
Comcast's original bid for MediaOne in March was close to $60 billion. But the company's stock has fallen since that time,
decreasing the value of its offer.
Less than one year after being spun off from local phone giant US West, MediaOne has found itself in the middle of a
high-profile bidding war that underscores today's value of cable operators and their broadband networks.
"Americans have been waiting for someone to run another wire to their homes to give them a choice in local phone service
and deliver the advanced services they expect in a competitive market," said AT&T chairman C. Michael Armstrong in a
statement announcing the bid.
"Our earlier acquisition of Tele-Communications Incorporated and now our proposal for MediaOne Group should leave no
doubt that we are serious about doing just that," Armstrong said.
The bid includes $4.5 billion in assumed debt and preferred equity, according to AT&T.
The offer was made in a letter sent to MediaOne executives today. AT&T said it had worked to develop the bid with Amos B.
Hostetter, the former CEO of US West Media Group, which was once MediaOne's parent.
Wall Street, media executives, and others in the Internet industry have quickly recognized the potential of cable to carry
voice and data in addition to traditional video programming, making cable companies such as MediaOne ground zero in the
so-called the convergence game.
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AT&T's bid would include more than $30 in cash and 0.95 shares of AT&T stock for every MediaOne share. Based on
AT&T's closing price today, the cash and stock offer has a value of $87.375 per MediaOne share, according to AT&T.
MediaOne, which had already accepted its cable peer's buyout offer last month, would say little about the offer. "The
proposal is currently under review," said MediaOne spokesman Dave Wood. "We have nothing to add at this time."
Comcast's proposal gave MediaOne the right to entertain--but not solicit--other offers during a 45-day window, set to expire
May 6. If it accepts another proposal, MediaOne would be requried to pay Comcast a $1.5 billion fee.
"Now we have two on the table," Wood said.
If MediaOne executives agree to the deal, AT&T would vault far ahead of its nearest competitor, Time Warner cable, as the
largest cable company in the nation.
Its acquisition of TCI, completed in late March, gave it nearly 11 million subscribers. The addition of MediaOne's base of five
million customers would bring it close to 16 million subscribers.
Phones, cable, and high-speed Net
AT&T is on a drive to provide local telephone service to as many households as possible, ideally though cable TV lines.
Its TCI acquisition, along with a deal with Time Warner cable, will give AT&T close to 40 percent national coverage. But
Armstrong has said his goal is close to 65 percent coverage. To reach this, the company will have to be able to cover
subscribers from Comcast, MediaOne, and Cox Communications, the third, fourth and fifth-largest U.S. cable companies.
Striking a deal with MediaOne would bring AT&T significantly closer to this goal, and potentially eliminate one additional
obstacle. MediaOne is one of the largest shareholders in Time Warner cable, and must approve the cable telephony deal
between AT&T and Time Warner.
The acquisition also would give it a strong new hold on the high-speed cable Net market.
Already the biggest and controlling partner of the @Home Network, also through its purchase of TCI, AT&T would pick up
close to 50 percent of Road Runner, the other large cable Internet service.
This would likely add fuel to arguments by AOL and consumer groups that the cable networks should be opened to all
ISPs--much as ordinary phone lines are today--lest companies like AT&T be given a monopoly over cable Internet service.
MediaOne is primarily located in the Northeast, including Massachussetts and New Hampshire. The company, the nation's
third-largest cable operator, also has significant holdings in Atlanta, Detroit, Los Angeles, as well as Florida and central
California.
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