Comcast’s AT&T deal gets an SEC greenlight

Co. allowed to measure deal's value; FCC needs time

Comcast edged one step closer to sealing its long-anticipated acquisition of AT&T Broadband on Thursday when the SEC approved its accounting treatment of the deal. The merger to create the biggest U.S. cabler with 22 million subs is now on track to close in the fourth quarter, the company said.

Comcast confirmed Thursday that the Securities and Exchange Commission has given its blessing to the accounting treatment of the debt exchange offer for the merger.

The SEC approved Comcast’s request to measure the value of new AT&T Comcast equity securities for financial reporting purposes as of June 30 rather than the initial deal announcement date of Dec. 19, 2001, when the total market-based deal value was $71.3 billion. Using the June 30 date, the assets will be valued on the books based on a total consideration of $54.9 billion.

The news was somewhat tempered by word that the Federal Communications Commission has stopped the clock on its review of the mega cable merger. The FCC’s decision on the deal was due in about three weeks. Now, the companies will have to wait at least an additional two weeks.

FCC needs more time

FCC media chief Ken Ferree said his staff needs time to digest documents explaining the recent deal between AT&T and AOL Time Warner to disentangle their joint ownership of Time Warner Entertainment. The clock was stopped earlier this week.

Consumer advocates say the TWE deal goes against the public interest because of a provision giving AOL TW carriage on Comcast/AT&T high-speed Internet lines. Advocates say this gives AOL a huge advantage over smaller companies.

In his letter to AT&T and Comcast, Ferree gave no indication as to whether the reg agency has concerns with the TWE arrangement beyond just reviewing the paperwork.

Unlike the EchoStar/DirecTV merger, also under review in Washington, the Comcast/AT&T merger is expected to clear both the FCC and the U.S. Dept. of Justice.

The blockbuster cable combine will control 35% of all U.S. subscribers.

Digestion problems

Some analysts are nervous about the Philadelphia-based company’s ability to digest such a big deal, which consists largely of debt and share assumption. Comcast will assume $11.8 billion worth of AT&T broadband debt as part of the merger.

Key to reducing the heavy debt load of the new AT&T Comcast is being able to monetize the 27% stake in Time Warner Entertainment, the partnership that is being unraveled between AT&T and AOL Time Warner.

The restructuring should provide AT&T Comcast with $1.5 billion in AOL TW stock, $2.1 billion in cash and a 21% stake in a new Time Warner Cable. The latter, with some 9 million cable subs, is due to be floated on the stock market next year.

Ratings agency Fitch, however, seemed confident enough of the combined companies’ ability to meet its financial obligations to reiterate its BBB credit rating Thursday. Fitch said it is counting on some $3.6 billion in cash and stock from the TWE deal to reduce AT&T Comcast debt.

Post-merger, Comcast will reach some 35% of U.S. cable households with some 22 million subs.

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