Tim, I've always wondered why Media One didn't seem to register as a Harmonic customer. I see in this story that they suggest AT&T is paying more for Media one than TCI because "In addition, it also signals that MediaOne is well ahead of TCI in upgrading its networks to provide phone services."
Do you know very much about the equipment that Media one has been buying?
Regards, Mark
Top Financial News
Fri, 23 Apr 1999, 2:16pm EDT
AT&T Shares Fall on Concern MediaOne Purchase Would Cut Profit, Raise Debt
AT&T Falls on Fear MediaOne Would Cut EPS, Raise Debt (Update1)
(Adds per-customer price AT&T is paying in 4th-to-last
paragraph, details on $2 billion in savings and other cable
stocks rise. Updates stock activity.)
New York, April 23 (Bloomberg) -- AT&T Corp. shares fell as
much as 7.9 percent on concern the largest U.S. long-distance
phone company would reduce profit and take on too much debt if
its $62.5 billion offer to buy No. 4 cable-TV provider MediaOne
Group Inc. succeeds.
AT&T dropped 3 1/16 to 53 11/16 in midafternoon trading of
31.7 million, making it the most-active U.S. stock. MediaOne
surged 7 7/16 to 76 15/16. AT&T is offering $85 per share, while
Comcast Corp. is offering $74.25. Comcast rose 1 1/8 to 68 3/4.
Chief Executive C. Michael Armstrong is doubling AT&T's bet
on cable-TV networks to offer local phone and Internet services
to compete against regional phone companies, after buying Tele-
Communications Inc. last month for $59.4 billion. Though AT&T
shareholders have backed Armstrong in more than $75 billion of
acquisitions, some investors said the company is taking too much
risk for a technology that hasn't been proven.
''My only question is whether AT&T is biting off more than
they can chew at this point,'' said Alan Hoffman, senior
portfolio manager at Value Line Asset Management, which owns
585,000 AT&T shares and 143,000 MediaOne shares. ''We don't know
if the TCI venture will be a success, and we especially don't
know if MediaOne will work out.''
AT&T unveiled the unsolicited bid late yesterday, offering
to pay $30.85 for each MediaOne share in cash plus 0.95 AT&T
share and assume about $4.5 billion in MediaOne debt. Comcast is
offering 1.1 Comcast share for each MediaOne share.
Other cable companies also rose on expectation there will be
more acquisitions at higher prices than the stocks are currently
trading. Adelphia Communications Corp. rose 5 to 66 1/4, Time
Warner Inc. rose 2 to 73 3/4, and TCA Cable TV Inc. rose 6 11/16
to 51.
MediaOne said it's evaluating AT&T's offer. Comcast wasn't
immediately available to comment.
Unproven
MediaOne already has a phone-over-cable business, but it's
only been able to sign up about 24,000 customers.
''There are still questions about the viability of doing
this,'' said Brian Adamik, senior vice president of the Yankee
Group. ''There has not been any large-scale application of cable
telephony anywhere in the world.''
Armstrong is looking to MediaOne to boost growth and reduced
the company's dependence on its stagnant consumer long-distance
business, which accounts for more than 40 percent of AT&T's $53
billion in annual revenue. Armstrong said the purchase will boost
AT&T sales 10 percent to 12 percent, and cash flow and earnings
20 percent to 25 percent after 2000.
''This can bring our shareholders greater growth. We'll
improve the cash flow and we're going to diversify the base,''
Armstrong said in an interview. ''That's shareholder value.''
A MediaOne purchase would cut AT&T earnings by 14 percent to
16 percent at the start and cash flow -- earnings before
interest, taxes, depreciation and amortization -- by 3 percent to
5 percent after 2000. Analysts and investors use cash flow to
analyze the performance of indebted companies because it focuses
on how the underlying businesses are doing.
To offset the dilution, AT&T plans to cut its costs by $2
billion by the end of next year, and Armstrong said more cuts
will after 2000. '
That includes a $400 million reduction in costs to connect
to other phone companies' networks, $850 million reduction to
operate AT&T's networks, $500 million less in selling, general
and administrative expenses and $250 million in certain areas
such as human resources, legal and internal systems, AT&T said.
Last Purchase?
Armstrong said the company has no plans for another
''significant'' cable-TV acquisition after MediaOne. Instead, he
said investors can expect AT&T to make some smaller equity
investments and swap certain properties. He wasn't more specific.
''We can bring value to this infrastructure just as we
explained we could bring value to the TCI infrastructure,''
Armstrong said.
Armstrong said he expects a response from MediaOne Chairman
Charles Lillis by May 6, the deadline for the company to evaluate
competing offers to Comcast's bid.
''I'm anxious to hear from him as soon as possible,''
Armstrong said. ''I'm confident that by that date we should see
some activity.''
AT&T said it's paying about $4,700 per customer for
MediaOne, 74 percent above the $2,700 it paid per customer for
TCI. The higher price reflects MediaOne's presence in more urban
areas. In addition, it also signals that MediaOne is well ahead
of TCI in upgrading its networks to provide phone services.
''This represents the highest multiple of cash flow ever
paid for a cable company,'' said Frederick Moran, analyst at ING
Baring Furman Selz. AT&T's proposed price for MediaOne is 25
times projected 1999 cash flow, or earnings before interest,
taxes, depreciation and amortization. The cable stocks have been
trading at about 15 times this year's estimated cash flow, he
said.
To help pay for the purchase, AT&T would sell about $18
billion to $20 billion of MediaOne's non-cable assets, including
all of its international operations, Armstrong said.
AT&T is being advised on the MediaOne purchase by Credit
Suisse First Boston and Goldman, Sachs & Co., as well as
attorneys Wachtell, Lipton, Rosen & Katz.
Under the original Comcast-MediaOne agreement, Comcast was
advised by Salomon Smith Barney and MediaOne was advised by
Lehman Brothers.
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