NEW YORK — Comcast Corp. abruptly withdrew from the bidding war for MediaOne Group late Tuesday, handing almost certain victory to AT&T just as a heated battle looked like it was about to begin.
Comcast and AT&T negotiated a peace to the bidding war in which Comcast will give up its $50 billion bid for MediaOne in exchange for purchasing some key cable systems from AT&T for $9 billion, the companies said.
That means the telco’s $62 billion bid will win unless another company, possibly Microsoft Corp. or MCI Worldcom, jumps into the fray — a prospect Wall Streeters did not rule out late Tuesday, although time for a new bid is rapidly running out.
Assuming that does not occur, AT&T has won a big victory by getting MediaOne without having to raise its already pricey offer. And Comcast has come away strengthened, with systems serving a net additional 2 million subscribers in key markets such as Philadelphia.
AT&T and Comcast announced the peace late Tuesday evening, several hours after word of the deal began to circulate on Wall Street. The two companies scheduled a press conference call for 8:30 p.m. EDT but canceled it after a 50-minute wait, without explanation, and rescheduled it for this morning.
Comcast will emerge from the deal with a total of 8 million subscribers, still the no. 3 cabler but in a better position than when it started. AT&T will end up with 14 million subscribers, rather than the 16 million it would have had if it had simply won MediaOne in a straight bidding contest.
But the telco giant also won Comcast’s agreement for a telephone joint venture covering the Philadelphia cabler’s systems. As AT&T’s entire rationale for buying up cable systems is to offer local telephone service through the cable lines, the Comcast agreement is a major coup for the telco.
It will now be able to offer telephone service on its own systems as well as those of the No. 2 cabler (Time Warner) and the No. 3 (Comcast).
For that reason, Wall Streeters did not rule out the possibility that Microsoft Corp., America Online or MCI Worldcom would jump into the fray. All three are worried by the prospect of AT&T dominating either the high speed Internet access systems or local and long distance telephony.
But a new bidder has only until Thursday, with the expiration of a 45-day period that began when Comcast and MediaOne signed their original deal in March, several sources said. An AT&T spokeswoman noted that the deal with Comcast was conditional on AT&T’s winning MediaOne.
Unless one of these outsiders enters the bidding, the negotiated peace likely averts the chances that Time Warner would have had an unwelcome new partner in its Time Warner Entertainment partnership which owns Warner Bros., HBO and several TW-managed cable systems.
MediaOne owns 25.5% of TWE and has joint management rights over the cable systems owned within the partnership, as well as limited rights over the other assets. But those rights would be instantly revoked if MediaOne were acquired by a cabler such as Comcast or AT&T, but not if it were acquired by a company like Microsoft or AOL.
Comcast’s withdrawal surprised some on Wall Street who had expected Comcast president Brian Roberts to aggressively fight AT&T for MediaOne.
But analysts hailed Comcast’s decision, noting Comcast had little chance of success in the fight if it had continued in the bidding.
“This is a terrific outcome for Comcast shareholders,” Roberts said in a statement late Tuesday, noting that the system acquisitions “have strengthened our local and regional presence.”
While no mention was made in Tuesday’s announcement, the main systems expected to be acquired are those owned by Lenfest Communications, which is now 50% owned by AT&T. The telco announced earlier Tuesday plans to acquire the other 50% from the Lenfest family for stock worth $2.2 billion.
Lenfest serves 1.5 million subscribers in the greater Philadelphia area, Comcast’s home base, so acquisition of these systems would fill out a big hole in Comcast’s coverage area.
Comcast will buy the additional systems in stages over time: Systems serving 750,000 subscribers will be added in a deal costing Comcast $3-$3.5 billion. Comcast will get an option to buy systems serving another 1.25 million subscribers for $5.7 billion over three years.
Comcast can pay for the systems in stock, including $2 billion of AT&T stock it already holds, the companies said. Comcast gets a $1.5 billion breakup fee for pulling out of the MediaOne deal, which will also help pay for the acquisitions, and the cabler may use some of its At Home Corp. stock, worth another $2 billion, to pay for the systems, sources said.
Comcast and AT&T are understood to want to delay identifying Lenfest’s role in the transaction for tax reasons, sources said.
“These agreements are great news for millions of American families who will now have a choice in local phone service,” said AT&T chairman Michael Armstrong.
It was not clear what prompted Comcast to give up the MediaOne fight. Since AT&T announced its bid April 22, Comcast execs had worked feverishly with its advisors to come up with ways to revise its offer.
Among the possible partners it met with were Microsoft Corp., which owns 5% of Comcast. The software giant even signed a confidentiality agreement with MediaOne, allowing it to get access to information about the cabler.
America Online was also believed to have looked at doing a deal but reportedly pulled out. It may be that Comcast could not raise enough money in the end to give a counter bid any chance of success.