T&T Makes $56 Billion Offer
To Acquire MediaOne Group
An INTERACTIVE JOURNAL News Roundup
AT&T Corp. Thursday unveiled a $56 billion offer for MediaOne Group Inc.
aimed at thwarting a deal reached last month by MediaOne and Comcast Corp.
The telecommunications giant offered to pay a minimum of $85 a share in
cash and stock for MediaOne, a premium of 22.3% over MediaOne's closing
price of $69.50 Thursday. AT&T said it would pay $30.85 in cash plus 0.95
share of its stock for every MediaOne share. AT&T additionally would
assume $4.5 billion in debt and preferred equity.
AT&T put the value of the deal at $58 billion, exclusive of debt, based on the
value of its shares at the close of trading in New York. But after the deal was
announced, AT&T shares fell in composite trading to finish the day at $56.75.
C. Michael Armstrong, AT&T's chairman and chief executive, said in a letter
to MediaOne Chairman and Chief Executive Officer Charles M. Lillis that
AT&T's offer is clearly superior to Comcast's in terms of value and growth
prospects.
AT&T said that its offer represents a healthy
premium over the current value of Comcast's
offer -- and it pointed out that unlike Comcast,
AT&T is offering cash as well as stock. Based
on Thursday closing price, Comcast's deal
would be worth about $48 billion.
The cash portion of the AT&T offer is
structured to protect MediaOne shareholders
against some fluctuation in AT&T's stock price.
AT&T said its offer will be increased to offset
up to a 10% decline from AT&T's closing stock
price of $57 per share on April 21, maintaining
a value of $85 for every MediaOne share if AT&T's stock trades between $57
and $51.30 per share, the company said. If AT&T's stock price increases,
MediaOne shareholders would enjoy the full upside appreciation. AT&T said
the stock portion of the offer will be tax-free to MediaOne shareholders.
The deal would further AT&T's already-ambitious plans to harness the next
generation of cable-TV infrastructure to deliver a suite of services including
local phone service and broadband Internet access. Those plans were cemented
by AT&T's landmark June 1998 acquisition of cable giant
Tele-Communications Inc.
"This acquisition is not only an investment in AT&T's future," said Mr.
Armstrong. "It's also an investment in the future of a competitive
communications market in the U.S."
The combination of AT&T and MediaOne "means that far more American
consumers will have a choice in local phone service," he said, adding that
"together, AT&T and MediaOne will bring broadband video, voice and data
services to more communities, more quickly than we could separately or, in
MediaOne's case, with any other company."
Last month Comcast unveiled an offer to buy MediaOne in an all-stock deal
valued at $48.63 billion when it was announced. The deal would give Comcast
about 11 million subscribers, just behind the 12 million-plus subscribers
claimed by market leaders Time Warner Inc. and AT&T.
Neither MediaOne nor Comcast officials were immediately available for
comment.
MediaOne is the former arm of regional Bell company U S West Inc.,
Denver. In addition to its five million cable-TV subscribers, MediaOne has a
25.5% interest in Time Warner Entertainment, which includes Time Warner's
cable systems, HBO, and the Warner Bros. movie studio.
Cable operators have been racing to become broadband companies, offering
customers interactive video, local and long-distance telephone services,
high-speed data connections and Internet-access services. Comcast itself has
been on a deal-making tear for several years, aiming to consolidate a slew of
video, programming and Internet assets.
The deal, if accepted, would bring together two competing services bent on
bringing high-speed Internet access to the home via cable-TV lines.
MediaOne's Road Runner service, which it operates with partner Time
Warner, is a rival to At Home Corp., whose controlling shareholder is
AT&T. Comcast has backed At Home, but Comcast's and MediaOne's
executives conceded the issue caused friction during merger talks and they
ultimately decided to put it off until after the deal closed.
AT&T said it plans to issue 626 million additional shares in the transaction
and expects dilution to earnings per share of approximately 30 cents in the
first full year of combined operation, resulting from additional shares
outstanding and the cost of financing, partially offset by expense reductions
and synergies. Following the purchase of MediaOne, cash earnings, which is
net income per share plus acquisition goodwill, will decline by less than 10
cents per share, AT&T said, adding that the acquisition over time will
accelerate earnings, cash flow and revenue growth. The company also said the
deal would reduce the percentage of AT&T's revenues that come from slower
growth businesses such as consumer long distance.
AT&T said it is confident in its ability to complete the acquisition by the end
of 1999.
The telecommunications giant said it plans to sell certain non-strategic
MediaOne assets currently valued at about $18 billion to $20 billion, and
continue its "aggressive efforts" to reduce overall AT&T operating expenses
by an additional $2 billion by the end of 2000.
Savings of at least $175 million to $200 million are expected from combining
the former TCI and MediaOne cable operations, it said.
AT&T said the majority of the expense reductions will be in network costs,
lower access fees paid to local exchange companies for handling long-distance
calls and more streamlined operations and systems.
AT&T said the acquisition of MediaOne would extend its cable reach to more
than 26.5 million households and expand its national coverage in key markets
such as Boston, Atlanta, and Los Angeles. |
