U.S.-based cable TV operator Comcast Corp. has proposed merging with AT&T Corp.'s broadband unit to create a 22 million subscriber-strong broadband communications company.
The submission of the proposal to AT&T's board, which was announced Sunday, follows several months of talks between the two companies that ended with no agreement, according to a statement from Comcast. "Over the last several months, we held discussions with AT&T Broadband regarding this combination," Brian Roberts, Comcast president, was quoted in the statement as saying. "It's unfortunate that we were unable to continue our dialogue."
Under the proposal, Comcast would issue US$44.5 billion worth of stock and assume $13.5 billion of debt. This would value the deal at $58 billion, although the final value could be pushed higher with further acquisitions. Comcast said it is prepared to acquire AT&T's interests in Time Warner Entertainment Company LP, Cablevision Systems Corp., and Rainbow Media and would issue more stock and assume more debt.
The deal would give AT&T shareholders a majority of the economic and voting interests in the combined company, said Comcast, adding the deal represents a value per subscriber of over $4,000.
Comcast executives sent an open letter to C. Michael Armstrong, AT&T's president and CEO, urging the AT&T board of directors to consider Comcast's offer. AT&T plans to issue a proxy statement later this month to shareholders proposing a tracking stock for its broadband business.
Late last year, AT&T announced plans to split itself into four companies covering the wireless, broadband, business and consumer telephone sectors. AT&T finished the spinoff of its wireless unit Monday by issuing stock in AT&T Wireless (AWE) to its shareholders, completing the first step in its plan to split into four separate companies. AT&T distributed .3218 of a share of AT&T Wireless common stock to AT&T common stockholders for each share of AT&T common stock held, after redeeming the outstanding shares of the wireless tracking stock.
With talks broken down between them, it appears Comcast is making details of its offer public in an attempt to woo AT&T shareholders with an offer it says is better than AT&T's breakup plan.
"Your shareholders would receive significantly more value through a combination with Comcast than through your planned restructuring," said Ralph Roberts, chairman of Comcast, in a letter to Michael Armstrong, chairman and chief executive officer of AT&T. "Not only does our proposal avoid the market risks, costs and uncertainties inherent in the planned broadband IPO (initial public offering), it values your business at a significant premium to your potential public market valuation."
AT&T responded to the Comcast statement Monday, saying in a statement of its own that informal conversations never led to any concrete proposals and denying that "social issues" created an impasse during talks.
"We have no current plans to sell our Broadband business, including the transaction proposed yesterday by Comcast," AT&T said. "However, we will evaluate the Comcast proposal and do what is in the best long-term interest of our shareowners."
Comcast said because of savings from combining the two companies, shareholders can expect to see an annual benefit to the company of at least $1.25 billion, which could increase to as much as $2.8 billion per year.
The two companies are no strangers. Most recently, on July 2, they closed a deal under which Comcast purchased an AT&T-owned cable TV system in Baltimore for $518 million in cash. The system had 115,000 subscribers. At the beginning of this year, Comcast sold its stake in cable Internet provider Excite@Home Inc. to AT&T Corp. in exchange for AT&T stock.
(With additional reporting by George A. Chidi, Jr.)