The AT&T Game Continues

AT&T announced (or threatened) that it might spin off its broadband unit if companies are unwilling to increase their offers.

by Erin Joyce Managing Editor, atnewyork.com [December 11, 2001]

The broadband unit of AT&T may still be in play if bidders can up their offers—otherwise, the unit may end up being spun off from the long distance provider, as AT&T had originally planned.

After meeting on Saturday in Basking Ridge, NJ to consider the three offers that have been submitted for the broadband/cable unit, AT&T's board of directors said it had "instructed management to continue discussions regarding AT&T Broadband with all interested parties."

The board said that it would evaluate the potential of all proposals to create long-term shareowner value, but cautioned "that there could be no guarantee that it would enter into a transaction for AT&T Broadband."

Comcast Corp. is said to have improved its offer from the original $44.5 billion stock deal it proposed in July.

Cox Communications and AOL Time Warner have also put bids on the table, though they have not been publicly released.

The other major competitor, Microsoft Corp. is said to be interested in helping out either Comcast or Cox in a bid to keep AOL Time Warner from getting any of the AT&T cable assets.

AT&T's cable subscribers number just over 14 million; AOL Time Warner's cable unit has about 12.7 million subscribers and Comcast lists about 8.4 million subscribers. Cox has about 6.2 million subscribers.

If the unit doesn't receive improved offers than what is already on the table, the likelihood is that AT&T could continue with its original plan to spin out the unit, industry observers have said.

But given AT&T's debt load and financing, that likelihood is still pretty slim, added Richard Doherty, research director of industry research firm The Envisioneering Group, and an expert on the cable industry.

"They need a partner. And the Microsoft money on the table is sort of an accelerant. Microsoft wants more access to more consumers and will do it through AT&T if it has to."

For that reason among others, the software company can't afford to have AOL Time Warner be a winning bidder for the cable unit, he added.

Doherty reckons that Microsoft has as much as $10 billion at the ready to assist Comcast or even the smaller cable provider Cox with their bids for the broadband unit.

"Microsoft wants to become the Internet dial tone for AT&T" whether it's with Cox or Comcast. And given the money that Microsoft has reportedly put on the table to help other bidders buy the broadband/cable unit, Doherty and his colleagues think the Comcast offer is still the most attractive for AT&T and its shareholders.

The sticking points, however, remain governance and voting rights issues in the Comcast offer.

At any rate, after six months of courtship over AT&T Broadband, the AT&T board can't go much longer than it has in keeping the bids private, Doherty noted. There are a lot of institutional investors of AT&T and Microsoft who are not likely to be patient much longer over the fate of the unit.

A spokeswoman would only say that AT&T hopes to have a final decision, on whether it would sell AT&T Broadband or spin it out into a separate tracking stock, by the end of the year.

— End