ATT/Comcast Shareholders Say Ok; Now It's Time for the Regulators

Cable World, July 15, 2002

Byline: STACI D. KRAMER

Last week's shareholder approval keeps Comcast and AT&T Broadband on pace for a fourth-quarter closing of the cable industry's largest merger but the two greatest hurdles - approvals from the Federal Communications Commission and the Department of Justice - have yet to be jumped.

Not to worry, says former FCC Chairman Reed Hundt. "I think that this deal probably sets the record for the biggest deal with the least amount of trouble getting approved," he said in an interview. "In part because the current administration generally doesn't have a problem with consolidation. In part it's a function of the total preoccupation of government with the crisis in corporate governance and accounting fraud.

Hundt, now a consultant to the industry and a venture partner at Benchmark Capital, added, "This is where the Roberts are getting one of the benefits of 20 years of being leaders in corporate America. They've always been known for their integrity and for their character." He added, "It's still reasonable to think about this deal being approved in October."

Approval may come with conditions for guaranteed third-party ISP access attached. The companies also await a tax ruling from the Internal Revenue Service, then there's the matter of AT&T's stake in Time Warner Entertainment to resolve.

Comcast president Brian Roberts spent part of last week selling the deal to the high-octane crowd of media moguls gathered in Sun Valley for the Allen & Co. summit. This time last year, the same group was debating how Comcast could succeed with its surprise hostile bid for AT&T. While Roberts' comments were made behind closed doors, the slides he used for the presentation was aimed at showing why the new company could be trusted in today's crisis-driven market. The first slide even spelled out "Crisis of Confidence in U.S. Business."

Once valued at $72 billion, the merger's current value is closer to $49 billion due to the 40-percent drop in Comcast's stock price since the proposed deal was announced Dec. 19. The total includes nearly $20 billion in debt being acquired with AT&T. Roberts' financial slides told the story: in December, the value per sub of Comcast on its own was estimated at $4,100 per sub and of the combined company at $4,500 per sub. Those numbers are $2,211 and $2,572, respectively, on July 11.

In conjunction with the July 10 shareholder meetings during which the merger was easily approved, AT&T and Comcast announced that more than 90 percent of the several thousand Local Franchise Authorities with approval rights have agreed. Terry Bienstock, Comcast Cable's general counsel, said, "I don't think LFA transfers are any impediment to closing the deal; that doesn't mean we don't want to get them."

Some approving of the merger did so despite the negative report of their consulting firm Creighton Bradley & Guzzetta, which advised LFAs to deny the merger because the new company would have too much debt. A line in the report: "Mr. Roberts has an excellent reputation as the head of a telecommunications empire. Our report assumes the head of the company is qualified, but we were unable to assume he may also be a magician."

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NEXT QUESTION:

What of the Time Warner Entertainment stake? Will ATT Comcast realize near full value?