While there will be short-term pressure on the stock, AT&T is positioning itself to be a telecommunications powerhouse in the 21st century. T will become a premier broadband content provider on the internet, the largest cable enterprise in America, and a local telephone company once again.
From Wallstreet Interactive on T/UMG
April 22, 1999
AT&T Makes $58 Billion Offer
To Acquire MediaOne Group
An INTERACTIVE JOURNAL News Roundup
AT&T Corp. Thursday unveiled a $58 billion offer for MediaOne Group Inc.
aimed at thwarting a deal reached last month by MediaOne and Comcast Corp.
The telecommunications giant said it has offered to purchase all of MediaOne for
$87.375 per share in cash and stock -- a deal worth $58 billion based on a
price of $59.50 a share for AT&T at the close of trading on the New York
Stock Exchange. That represents a 26% premium over MediaOne's price of
$69.50 at the close of Big Board composite trading. AT&T said it will pay
$30.85 in cash plus 0.95 shares of its stock for every MediaOne share. AT&T
additionally would assume $4.5 billion in debt and preferred equity.
AT&T shares fell in composite trading after the deal was announced to finish the
day at $56.75 in Big Board composite trading, down 25 cents on the day. That
would bring the value of the deal down to $56.27 billion.
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 premium of 17%, or $8.6 billion, over the
current value of Comcast's offer -- and it pointed out that unlike Comcast,
AT&T is offering cash as well as stock.
The cash portion of the 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. This will maintain 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 will 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.
|
