Comcast may not follow thru w/ MediaOne offer
April 30, 1999 18:44
Battle for MediaOne intensifies as titans clash
(recasts, new throughout, adds byline, stock prices)
By Jessica Hall
NEW YORK, April 30 (Reuters) - Cable television operator Comcast Corp. on
Friday enlisted two powerful allies, Microsoft Corp. and America Online Inc., in
its battle against AT&T Corp. to buy MediaOne Group Inc., the No. 3 U.S.
cable company.
At the request of Comcast, Microsoft and AOL forged confidentiality pacts with
MediaOne, a source familiar with the situation said. The pacts allow them to
see information about MediaOne's $48.2 billion merger agreement struck with
Comcast last month.
Meanwhile, talks between MediaOne and AT&T -- which last week topped
Comcast's offer with a surprise $58 billion cash and stock bid -- are
"proceeding," and a formal merger agreement could emerge over the weekend,
the source said.
AT&T, the No. 1 U.S. phone company and No. 2 cable TV operator, declined
to comment.
The confidentiality pacts with Microsoft, the world's No. 1 software company,
and AOL, the top online service provider, could set the stage for the technology
giants to help Comcast trump AT&T's bid with a sweeter offer, analysts said.
The arrival of Microsoft and AOL in Comcast's camp puts pressure on AT&T to
formalize a deal with MediaOne quickly and may force it to pay even more,
some analysts said.
The competition over MediaOne has become a clash of titans as the
heavyweights of the telecommunications, cable and technology industries
battle for MediaOne's valuable networks and subscribers.
Comcast wants MediaOne's 5 million cable subscribers to expand its
presence geographically and to join the ranks of cable industry leaders,
including Time Warner Inc., and Tele-Communications Inc., which was recently
acquired by AT&T.
AT&T, meanwhile, sees linking up with cable companies as a way to gain a
direct line 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.
A purchase of MediaOne, coupled with the TCI acquisition and its joint venture
with Time Warner, would allow AT&T to reach about half of all U.S.
households, analysts said.
"AT&T has to have this (MediaOne) strategically. Strategically, this is on the
order of survival for them," said Salvatore Muoio, an analyst with with S. Muoio
& Co.
"AT&T needs a national strategy and MediaOne would give that to them.
Without MediaOne, they spent ($55) billion on TCI for nothing and they still
won't have access to the local market," Muoio said.
AT&T has the financial might and motivation to overpower Comcast and won't
back off quickly, even if Philadelphia-based Comcast recruits rich allies,
analysts said.
Comcast would be hard pressed to top AT&T's bid on its own and any attempt
to counter AT&T's offer would likely be made only with the support of others,
analysts said.
After AT&T launched its surprise MediaOne bid, Comcast quickly received
expressions of support from Microsoft, AOL and Paul Allen, the Microsoft
co-founder who has made substantial investments in the cable industry.
Microsoft is already a major Comcast shareholder. It bought a $1 billion stake
in 1997.
AOL and Microsoft would be willing to assist Comcast in order to prevent AT&T
from becoming a cable behemoth and dwarfing its competitors, analysts said.
"Microsoft doesn't want any one vendor to become too strong. AT&T (with
MediaOne) could dictate terms...and have a lot of control," said Rob Enderle,
an analyst with Giga Information Group.
AOL also wants to prevent AT&T from controlling too many cable TV assets,
which are attractive vehicles for providing high-speed Internet access. AOL and
other Internet service providers have been lobbying for open access to the
cable networks, a move AT&T and other cable operators have resisted.
"AOL wants to make sure, as AT&T begins to push services through cable
lines, that AOL has equal or similiar access and is not locked out of the cable
access space," Enderle said.
Under the terms of MediaOne's 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.
Traders said they expect AT&T to try to strike a deal with MediaOne before
Wednesday to prevent Comcast from having too much time to solidify its
strategy with its new allies.
Comcast, which would have 5 days to respond to any superior offer, would be
smart to wait until it sees what AT&T's formal deal entails before making a
counter bid, traders said.
"Right now, Comcast has the only formal deal. AT&T's is just an offer. Why
would (Comcast) bid again until there is something real to bid against?" said
one trader who declined to be named.
"I'm a little skeptical whether Comcast will come back with something, even
with these partners. They'd have to come back with a knock-out bid to be
successful and I don't know if (the partners) would think it's worth it," Muoio
said.
AT&T's stock closed down $2.75 at $50.50 Friday, while MediaOne shares
rose $2.19 to $81.56 and Comcast shares lost 75 cents to $62.88. AOL rose
$1.69 to $142.75 and Microsoft fell 75 cents to $81.31. |
