AT&T’s stock price slid 5% Friday on expectations that the telco giant will have to raise its $62 billion bid for MediaOne as chances grow that Microsoft and America Online will help Comcast make a revised offer for the cabler.
MediaOne said Friday that it has signed confidentiality agreements with both Microsoft and AOL allowing it to “share information” about the deal to which it had previously agreed with Comcast. MediaOne’s statement represented the first public confirmation that the software behemoth and online giant were involved.
The two companies, thought to be working independently of each other, are expected to help finance a higher offer by Comcast, whose $52 billion friendly bid for MediaOne last month was trumped by AT&T’s $62 billion offer 10 days ago. MediaOne declined to elaborate.
Telco won’t let go
AT&T execs have made clear that the telco won’t back down, however, and would undoubtedly raise its offer to outbid Comcast once again, analysts say.
People close to Comcast said Friday that a whole range of options were being considered, including independent bids by Microsoft or AOL. Both companies have far more resources than Comcast: Microsoft alone has $20 billion in cash and a market value of $350 billion.
Comcast stock slid 6¢ to $65.68 Friday, valuing its offer at $72.24 a share. AT&T’s offer is still worth far more, about $84 a share, although Friday’s stock fall took its price below a key threshold point which was keeping the value of its offer at $85.
Despite the drop in the value of AT&T’s offer, MediaOne stock rose $2.25 to $81.62, a sign that investors expect the bidding war for MediaOne to escalate.
Neither Microsoft nor AOL would comment Friday on their involvement but both have their own strategic rationale for stopping AT&T from buying MediaOne.
If AT&T wins the bidding war, it will emerge with access to at least 27% of U.S. television households — as much as 35% if its affiliated cable systems are included.
AT&T would also have a big interest in At Home Corp. and Roadrunner, the two companies used by cablers to offer high-speed Internet access. At Home is controlled by several cablers, including AT&T, while Roadrunner is 40% owned by MediaOne and 10% by Microsoft.
It’s about access
As a result, a merged AT&T-MediaOne would be in a strong position to control access to the Internet –a big concern to AOL and Microsoft. AOL has already been lobbying Washington regulators and politicians to get access to cable systems, so far without success, but this deal is sure to add to its concerns.
“Our strategy has been pretty clear,” AOL CEO Steve Case told Wall Street analysts last week. “We want to make AOL readily available to as many people as possible.”
Cable is also an important part of Microsoft’s strategy, as it demonstrated by investing $1 billion to buy a minority stake in Comcast two years ago. More recently, it pumped $500 million into U.K. cabler NTL.
Still the front-runner
Still, the consensus on Wall Street is that AT&T will ultimately prevail. “It’s an interesting development, but I still don’t think it’s going to go anywhere. Why would Microsoft want to part with any of their cash hoard just to buy a minority interest in a cable company with 5 million subscribers?” asked Sal Muoio, a money manager with SM Investors.
One party closely watching the unfolding battle is Time Warner, which is partners with MediaOne in the Time Warner Entertainment partnership owning several TW-managed cable systems, Warner Bros. and HBO. The entry of Microsoft and AOL into the deal slightly changes the stakes for Time Warner, Wall Streeters noted Friday.
That’s because management rights enjoyed by MediaOne over the TWE cable systems are revoked if MediaOne is acquired by a cabler — either Comcast or AT&T. But the same provision does not necessarily apply to either Microsoft or AOL if either were the acquiring company as neither are competing with TWE’s businesses.
That means Microsoft or AOL could end up with some management rights over the TWE cable systems as well as limited influence over fundamental decisions affecting the other TWE businesses, Warner Bros. and HBO. Time Warner declined comment.