After six months of conversations with a number of suitors, AT&T Corp. agreed to merge its cable television and broadband unit with Comcast Corp. in a US$72 billion deal, creating a new company called AT&T Comcast Corp.
AT&T and Philadelphia-based Comcast announced the decision yesterday following a meeting in New York. Combining AT&T Broadband with Comcast will create a company with approximately 22 million subscribers in 17 of the 20 largest metropolitan areas in the U.S.
Officials from the two companies said AT&T would spin off AT&T Broadband while merging it with Comcast to form the new company. According to officials, AT&T shareholders would get about one-third of a share of AT&T Comcast Corp. stock for each AT&T share they own. Comcast stockholders will receive one share of the new company for each Comcast share. That will give AT&T shareholders a 66 percent voting stake, and give the Roberts family, which owns all of the Class B shares of Comcast, one-third of the voting interest in the new company, according to the two companies.
Comcast made an unsolicited bid of $40 billion for the AT&T cable company in July. And although AT&T declined that offer, the early move by Comcast caused AT&T to begin serious conversations with other potential buyers, including AOL Time Warner Inc., The Walt Disney Co. and Cox Communications Inc., according to analysts. Microsoft Corp. was also involved at one point.
"This deal works," said Jeff Kagan, a telecommunications analyst in Marietta, Ga. "It's a good deal for AT&T and Comcast and the investors of both companies," Kagan said.
Over the past few years, AT&T has acquired what Kagan described as "a patchwork quilt of cable properties." AT&T has been upgrading those systems, Kagan said, to create a digital infrastructure that provides not only cable TV but a growing number of other services, including high-speed Internet access and telephone over cable. It also gives Brian Roberts, president of Comcast and son of founder and chairman Ralph Roberts, the opportunity to "take the company to the next level virtually overnight," according to Kagan.
"AT&T Comcast will create value for its customers, shareowners and employees by bringing more services to more people more quickly," said Michael Armstrong, chairman and CEO of AT&T, in a statement.
Ralph Roberts said in a statement, "This transaction is the most rewarding and important step Comcast has taken since I started the company nearly four decades ago."
Although the deal has been blessed by the AT&T board of directors, it still has to get over government regulatory hurdles. But Kagan said he believes that it will "pass ... muster relatively easy."
Comcast's Brian Roberts will be the CEO of the new company, and Armstrong will serve as chairman instead of retiring from AT&T, which he had planned to do in May of 2003. Armstrong will retain his post as chairman and CEO of AT&T until the merger is finalized late next year.