more moves by T: AT&T Buys Back Stock with Cable Systems
By MIKE FARRELL July 12, 1999
AT&T Broadband & Internet Services kicked off what could be a long line of system sales or swaps last week, agreeing to deliver 495,000 subscribers to Cox Communications Inc. for $2.8 billion in Cox-owned AT&T Corp. stock.
Cox will exchange more than 50 million shares of AT&T stock that it owns for the systems, which are located primarily in Tulsa, Okla., and Baton Rouge, La.
In addition, Cox will acquire Peak Cablevision, a partnership between AT&T and the Fisher family, as well as AT&T's 20 percent joint venture with TCA Cable TV Inc.
Cox agreed to buy TCA last month in a deal worth $4 billion.
Cox also gets about $750 million in cash and "other consideration" -- primarily the assumption of a small amount of Cox debt by AT&T.
Based on AT&T's closing price of $56.63 per share July 6, the deal works out to about $4,230 per subscriber. Merrill Lynch & Co. advised Cox.
The deal, word of which leaked during the National Show last month, could prove to be the first in a series of swaps that AT&T plans in order to pare down its subscriber base to appease regulators reviewing its proposed merger with MediaOne Group Inc.
AT&T submitted the MediaOne proposal to the Federal Communications Commission last Thursday.
In order to comply with the FCC's now-suspended attribution rules -- which prohibit a single cable operator from controlling more than 30 percent of cable subscribers in the country -- AT&T has been scrambling to divest many of the cable partnerships it inherited from Tele-Communications Inc.
According to several analysts, AT&T has said that it wants to consolidate 90 percent of its operations in the top 25 markets in the country. Analysts said it is AT&T's intention to hold on to just three partnerships -- Insight Communications Co., Time Warner Entertainment and Cablevision Systems Corp.
Several analysts believe the next moves for AT&T could include deals with Charter Communications for systems in the New England market and with Adelphia Communications Corp. for AT&T systems in western New York.
And although the Cox deal helps AT&T to shed a healthy number of subscribers and to regain a large chunk of its stock in the meantime, the Atlanta MSO benefits, as well.
Cox has had its eye on the Tulsa system for quite a while -- it had planned to form a joint venture with TCI for the property last year, but that deal was scrapped after AT&T made its offer to buy TCI.
Coupled with its existing systems in Oklahoma City, Louisiana, Texas and Arkansas, the deal creates a regional supercluster with 1.7 million subscribers for Cox.
"This fits our operating strategy of clustering and maximizing the value of the significant nonconsolidated investments we have," Cox spokesman Anthony Surratt said.
Cox received the AT&T shares as part of its involvement in Teleport Communications Group, a competitive local-exchange carrier that was sold to AT&T last year.
The Tulsa system has about 160,000 subscribers, and it is located near an existing Cox system in Oklahoma City with about 125,000 subscribers. The Baton Rouge system, with about 156,000 subscribers, adds to existing Cox properties in New Orleans and Jefferson Parish in Louisiana.
In addition, Cox receives about 117,000 subscribers from Peak Cablevision in Oklahoma, Arkansas, Utah and Nevada. Daniels & Associates Inc. said it advised Peak.
PaineWebber Inc. vice president of research Thomas Eagan said the deal was a good one for both companies. Although he added that the price could be considered a little high, it is in line with the condition of the systems.
"This deal makes complete sense," Eagan said. "AT&T is using its reservoir of subscribers to swap other assets -- the $2.8 billion in AT&T shares that it obviously wants to get back."
He added, "The price kind of makes sense. Obviously, these are not great systems, which is why they didn't trade at $4,600 [per subscriber]. They're probably decent systems. And it gives Cox a pretty decent large cluster in the south central part of the United States."
SG Cowen Securities Corp. analyst Gary Farber also liked the deal, adding that it shows that cable companies continue to hold their value, especially in light of recent court decisions that could force MSOs to open their high-speed networks to competition.
"From an industry perspective, it's more positive," Farber said. "This is greater affirmation that in the post-Portland [Ore.] ruling environment, this is pretty valuable plant."
The deal did not include a telephony agreement, which AT&T has been attempting to strike with Cox and other MSOs. Cox has admitted that it has been in informal negotiations with AT&T regarding telephony, but it doesn't appear that any deal is imminent.
"We would be open to talking to AT&T about a local carriage agreement for telephony," Surratt said. "The interest is on carriage that makes sense to us financially."
Cox has been successful with its own branded switched-telephony service -- it currently has about 60,000 subscribers -- so rushing into a telephony deal is not a top priority for the MSO.
204.243.31.23
[Is that date right?]
cheers,
gary |
