Comcast offers US$44.5b for AT&T Broadband

The offer follows months of negotiations between Comcast and AT&T, which is in the process of splitting its company into four separate businesses. Spinoff AT&T Wireless began trading Monday.

"Over the last several months, we held discussions with AT&T Broadband regarding this combination," said Comcast president Brian Roberts. "It's unfortunate that we were unable to continue our dialogue. At this point, however, we believe that AT&T's board of directors should consider our proposal before a proxy statement relating to its broadband tracking stock proposal is sent to AT&T shareholders later this month."

The bid lifted shares of AT&T US$1.98 to US$18.70, or nearly 12 percent, but dragged down Comcast US$2.90 to US38.95, or nearly 7 percent, by market close Monday.

The reasons for the AT&T gains were pretty clear, according to analysts. Comcast was offering a solid price for AT&T Broadband, which has lagged its industry peers in terms of profit margins. The bid also shows that AT&T is worth more in parts.

As for Comcast, investors were skittish about whether the cable giant could bring AT&T Broadband's profit margins up to speed. Comcast is an industry leader in subscriber cash flow.

"We estimate that Comcast's offer values AT&T Broadband at US$3,800 to US$3,900 per subscriber, largely in line with valuations afforded to other cable companies," said CIBC Oppenheimer analyst Tim Horan. He also noted that AT&T management "will be hard-pressed to ignore the proposal" even though Ma Bell has said its cable unit isn't for sale.

The Comcast bid also illustrates the willingness to go over the heads of AT&T management. Comcast's bid is an apparent "pre-emptive strike to keep John Malone and Liberty Media from organizing first bid", said Bernstein analyst Tom Wolzien. Liberty Media, run by AT&T board member Malone, is a cable-programming unit that AT&T plans to spin off.

No plans to sell, but will evaluate offer
AT&T said it does not plan to sell its cable business, but would evaluate the offer. The company also confirmed that it has been in negotiations with Comcast since last month.

"We have no current plans to sell our broadband business, including the transaction today proposed by Comcast," an AT&T spokeswoman said. "We will analyze the proposal and respond in due course. We're obviously going to evaluate and compare all of our options and do what's best for our shareowners."

The Comcast offer raises new questions about AT&T's plan to offer local phone service and high-speed Internet access using cable networks.

AT&T in recent years bought Tele-Communications Inc and MediaOne Group, two major cable operators, for a combined US$110 billion. AT&T Broadband was slated to begin trading as a tracking stock in late fall, with plans for a potential IPO later. But a sale to Comcast would put an early end to AT&T's cable strategy and shake up Ma Bell's four-part restructuring plan.

A combination of Comcast and AT&T Broadband would be the nation's No 1 cable operator by far. Already the nation's largest cable company, AT&T Broadband has 13.5 million subscribers. Together, the companies would have 22 million customers in eight of the 10 largest US markets.

Comcast proposes to offer 1.0525 billion shares of Comcast stock and said it also is willing to acquire AT&T's interests in Time Warner Entertainment, Cablevision and Rainbow Media if necessary to complete a deal.

It was AT&T that outbid Comcast for MediaOne more than two years ago. Comcast decided against increasing its earlier US$48 billion bid for MediaOne, clearing the way for AT&T's purchase.

The US$58 billion valuation Comcast's offer puts on AT&T Broadband is a significant decline from the US$110 billion AT&T paid for TCI and MediaOne.

Stock in AT&T has plunged in the past year for a variety of reasons, including the overall stock-market malaise, declining profits--particularly in its core long-distance voice business--and uncertainty surrounding Ma Bell's decision to abandon its earlier plan to create an integrated communications giant in favor of a four-part breakup.