MediaOne Takes AT&T Offer Over Comcast
By Jessica Hall 16:28 05-03-99
NEW YORK (Reuters) - MediaOne Group Inc., the No. 3 U.S. cable television company, Monday accepted AT&T Corp.'s $56.4 billion takeover offer and terminated its previous $46.9 billion agreement to merge with smaller rival Comcast Corp.
Comcast, the No. 4 U.S. cable television company, must now decide whether it will launch a counteroffer for MediaOne by a Thursday deadline or take its $1.5 billion break-up fee and shop for other acquisitions. Comcast declined to comment.
MediaOne said AT&T's cash and stock bid, valued at $85 a share or $56.4 billion, was a ''superior proposal'' to Comcast's offer, which is valued at about $46.9 billion, based on Comcast's stock price Monday.
MediaOne's board deemed AT&T's offer superior since it provided a higher price tag, as well as voting rights and a dividend, sources familiar with the situation said.
AT&T said it was ''pleased'' with MediaOne's decision but declined further comment. The combined AT&T and MediaOne would be the largest U.S. phone company and cable TV operator.
Comcast is unlikely to launch a counterbid on its own and its chances of finding a rich ally to help it sweeten its offer may be slim, analysts said.
At the request of Comcast, Microsoft Corp. and America Online Inc. last week forged separate confidentiality pacts with MediaOne that allowed them to see financial information regarding MediaOne and Comcast's original merger agreement.
That set the stage for Microsoft and AOL potentially to help Comcast increase its bid and to prevent AT&T from becoming a cable behemoth and dwarfing its competitors.
Since then, however, AOL reportedly has decided against pursuing a joint bid with Comcast and any plans to do so are unlikely to be revived by the Thursday deadline, cable TV news station CNBC reported Monday. AOL declined to comment.
The financial demands of topping AT&T's cash and stock offer may have been too risky for AOL, which has limited stock on hand, analysts said. The leading online service provider's stock price would have fallen sharply if it proceeded with a MediaOne bid since cable stocks do not have the same high-flying valuation as Internet stocks, traders said.
AOL also may have backed away from MediaOne to avoid alienating AT&T since it may want to partner with the long distance leader -- and its vast, new cable TV holdings -- in the future, analysts said. AOL and other Internet service providers wanting to offer high-speed World Wide Web access have been lobbying for access to cable TV networks.
''The mergers we see now are shaping the industry for the next century. If a Microsoft or an AOL were to come in (to bid for MediaOne), the lines of battle are drawn. I don't know if it's a battle that makes sense to fight right now. AOL or Microsoft might be better off to look for ways for people to cooperate rather than battling,'' said Brian Adamik, an industry analyst with the Yankee Group.
Comcast may still get some financial backing from Microsoft or Paul Allen, the Microsoft co-founder who has made substantial investments in the cable industry recently.
Microsoft invested $1 billion in Comcast in 1997 but would be unlikely to want to run or control a cable TV company, analysts said.
''Paul Allen is the wild card. But Microsoft hasn't demonstrated a significant interest in being a service provider,'' Adamik said.
The varied interest in MediaOne has become far more than just a competition for the cable company's 5 million U.S. television subscribers.
AT&T, the No. 1 U.S. long distance phone company, wants MediaOne more for its network infrastructure. AT&T has been linking with cable companies as a way to gain direct access to customers' homes and offices without using networks controlled by the local phone companies. AT&T plans to provide phone and high-speed data services over the cable lines.
AT&T's proposed purchase of MediaOne, coupled with its recent acquisition of Tele-Communications Inc. and its joint venture with leading cable operator Time Warner Inc., would allow AT&T to reach about half of all U.S. households, analysts said.
Traders said they expect AT&T to ultimately win the MediaOne battle since it needs the cable assets far more than the other suitors and would be able to raise its bid further to ensure victory.
''My guess is that AT&T will win, even if someone else comes in and bids. They have the money and the need,'' said one trader who declined to be named.
AT&T needs MediaOne to justify its recent foray in the cable industry and to gain national reach, instead of being just a regional cable player.
No other company would be motivated enough to top AT&T's already rich offer. ''I don't think is that likely that there will be another bid,'' said another trader who declined to be named.
AT&T's stock gained 56.25 cents to $51.0625, while MediaOne slipped $1.6875 to $79.875 on the New York Stock Exchange.
Comcast gained $3.0625 to $65.9375. AOL fell $9.625 to $133.125 and Microsoft shed $1.6525 to $79.75.
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