Comcast announced on Tuesday that it will not make a further offer for cable television and Internet access company MediaOne Group in response to a higher bid from AT&T. Instead, AT&T and Comcast have reached an agreement whereby the two companies will exchange cable systems.
The agreement will see Comcast potentially increasing the number of its cable subscribers by around 2 million households, the companies said on Tuesday. The pair will also work together to offer a competitive local phone service to Comcast customers, they added.
MediaOne announced Monday that it was terminating its merger agreement with Comcast in favour of AT&T's bid unless, Comcast could come up with a better offer by tomorrow.
The bidding war for MediaOne dates back to March when Comcast first announced a $60 billion stock swap offer to purchase the cable television and Net access company. Then last month, AT&T topped that bid with a deal involving cash and stock worth about $58 billion on the day it was announced, plus another $4.5 billion to assume MediaOne debt.
On Friday, MediaOne said it would share information with Microsoft and America Online (AOL) about the merger plan with Comcast in case the two vendors decided to join the bidding.
Comcast officials said on Tuesday that it will not submit a revised offer to buy MediaOne. They added that the company expects MediaOne will terminate the companies' previous merger agreement and that Comcast will receive a $1.5 billion termination fee as agreed in the original merger agreement.
Under the terms of Tuesday's deal, Comcast and AT&T will exchange various cable systems in order to improve both companies' geographical coverage by better clustering their systems, the duo said.
The move will give Comcast an extra 750,000 subscribers and in regard to this, the company will pay AT&T a consideration of around $4500 per added subscriber up to a maximum value of between $3 billion and $3.5 billion, officials said. The exchanges of cable systems are by and large dependent on the completion of the merger agreement between AT&T and MediaOne.
Additionally, AT&T is giving Comcast the option of buying other cable systems with a total subscriber base of around 1.25 million over the next three years. Comcast would need to pay a consideration for these extra subscribers of around $5.7 billion, the statement said. This deal is also contingent on the completion of the merger between AT&T and MediaOne.
For its part, Comcast is to offer AT&T-branded telephony in all its markets, once AT&T has finished separate telephony agreements with two other unnamed multiple system operators, officials said.
Comcast president Brian Roberts said that the deals will make Comcast the third-largest cable company in the US, with more than 8 million subscribers, as well as advancing Comcast's plans to enter the telephony market. "This is a different outcome than our MediaOne proposal, but it is an elegant win-win result," he said.