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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1597)	4/24/1999 12:11:00 AM
From: porcupine --''''>	Respond to of 1722

AT&T's MediaOne bid would solidify cable strategy By Jessica Hall NEW YORK, April 23 (Reuters) - AT&T Corp.'s $58 billion bid for cable television company MediaOne Group is a bold and expensive gamble, but it may be needed to solidify its foray into cable-based telephone service, analysts said. AT&T on Thursday made an unsolicited offer to buy MediaOne, the No. 3 U.S. cable company, hoping to break-up MediaOne's $48.2 billion merger agreement with Comcast Corp. . The bid follows more than $78 billion in acquisitions and joint ventures by AT&T in the past 18 months, including the recent $55 billion purchase of Tele-Communications Inc., the No. 2 U.S. cable company. AT&T shares dropped $6.25 to $53.25 in heavy New York Stock Exchange trading on concern the deal would dampen profits and fear AT&T may face a bidding war if Comcast raises it bid. AT&T has been linking up with cable companies as a way to gain a direct connection to customers without using networks controlled by regional phone companies. AT&T plans to provide phone and high-speed data services over the cable lines. The MediaOne bid, in addition to the TCI purchase and its joint venture with Time Warner Inc. , would allow AT&T to reach about half of all U.S. households, analysts said. "The company's decision to get bigger and more equity laden in cable telephony is actually a very bullish sign...they are trying to say they believe it's going to work," Sanford Bernstein analyst Tod Jacobs said in a conference call. The MediaOne deal would give AT&T the first real hope of creating a national cable phone network. "AT&T can not afford...to simply be a regional player...we must be a national player," AT&T Chairman C. Michael Armstrong said Friday in a conference call. AT&T felt it needed to buy MediaOne -- rather than just forming a partnership -- to get more control; to better compete in the local phone market against the regional Bells and to protect its existing long distance customer base. "By putting together the kind of facilities-based properties...we are not only able to protect that (customer) base, but we're able to gain market share and grow that base. This is the difference between being on the defense in most of the country and being on offense in most of the country," Armstrong said. AT&T said it held preliminary discussions about a joint venture with MediaOne, Comcast and Cox Communications Inc. , but did not specifically discuss purchasing them. If AT&T wins MediaOne, it may forge partnerships with other cable companies, but would not buy another big cable provider. "There will be swaps of properties...equity changes in what we own, but we have no further plans on a significant acquisition (in the cable business)," Armstrong said. But the MediaOne bid would be costly, both in the cash and stock being paid and in how near-term profits would be hurt. It would dampen AT&T's profits 14 percent in the first full year of the combined AT&T-MediaOne operations, analysts said. But over the long-term, the deal would help AT&T find new growth to offset declining consumer long distance revenues and flat business long distance revenues. AT&T said the deal would help it accelerate its total revenue growth to about 10 to 12 percent, up from about 3.2 percent in 1998. The deal is a massive pill to swallow following AT&T's recent string of acquisitions, especially in the largely unproven cable telephony, analysts said. Armstrong, who joined AT&T less than two years ago, is a savvy deal maker, but he must still absorb all the purchases and shift AT&T's conservative culture to adapt to the fast-moving cable and data businesses, analysts said. AT&T talked with several key investors on Friday to better explain the deal, the company said. "Our main concern is that Comcast, perhaps aided by another company, and (AT&T) enter a bidding war," Merrill Lynch analyst Dan Reingold said in a research report. Reingold, otherwise, was optimistic about the potential deal. Comcast is not likely to give up without a fight and it could attract several deep-pocketed partners, analysts said. Microsoft in 1997 invested $1 billion in comcast for a 10 percent non-voting stake and would have a 5 percent non-voting stake in Comcast-MediaOne if the deal was completed. "Risks abound, especially for investors who found the company's execution and implementation of cable telephony a risk that's hard to swallow," Jacobs said. Analysts expect AT&T stock to remain weak until the uncertainty over MediaOne is resolved, which should be by the end of May. Under the terms of its agreement with Comcast, MediaOne has until May 5 to accept a superior offer. MediaOne can seek a 21-day extension, making May 26 the final day it can terminate the Comcast agreement. (( Jessica Hall, New York newsroom 212-859-1729))