AT&T shares fall as investors wonder about TCI deal Stock loses $1.88, to $54.88, is off 16% since June 23

Telecommunications

July 03, 1998|By BLOOMBERG NEWS

NEW YORK -- AT&T Corp. shares continued to drop yesterday, touching a seven-month low, as investors question whether the largest U.S. long-distance phone company's $43 billion purchase of Tele-Communications Inc. will succeed.

AT&T fell $1.88, to $54.88, in trading of 13.6 million shares, making AT&T the fifth-most-active U.S. stock. AT&T shares have fallen 16 percent since June 23, the day before the TCI acquisition was announced.

AT&T has failed to convince investors that TCI is the company's answer to getting into the $100 billion-a-year U.S. local phone market. In addition to meeting the purchase price, AT&T plans to spend $5.7 billion to upgrade TCI's cable-television network, and the technology needed to provide phone services over a cable network has yet to be proven.

"People are nervous about how much they'll have to spend to upgrade the network on top of the already rich price they're paying," said Jeffrey Heil, investment officer at the Regents of the University of California, which owns 9.73 million AT&T shares. Providing phone services over a cable network "hasn't been done before," he said.

AT&T said it expects to complete the acquisition in the first half of 1999. The sale needs approvals from shareholders, the U.S. Justice Department and the Federal Communications Commission, as well as state and local authorities.

AT&T has said the TCI purchase will cut into earnings for at least two years. Per-share earnings will be as much as 23 percent lower in 2001 than AT&T had forecast before the purchase was unveiled. AT&T says it expects to earn $4.60 a share in 2001 and $5.50 in 2002. Before, the company predicted per-share earnings of $5 to $6 by 2001.

About two weeks ago, AT&T agreed to buy TCI, the No. 2 cable company, for $48 billion in stock and assumed debt to get direct access to customers' homes via TCI's cable network. Since then, the purchase price has fallen by about $5 billion as AT&T's shares declined.

On Wednesday, AT&T held its second conference call with analysts and investors to explain what it will have to do to prepare the TCI network for phone services and the costs involved. It was part of Chief Executive Officer C. Michael Armstrong's effort to show that AT&T understands cable networks and knows what it will take to make its phone-over-cable plan work.

Investors at first were enthusiastic about Armstrong's moves after he took over at AT&T on Nov. 1, which included sales of about $5 billion in assets and plans to buy local phone-service company Teleport Communications Group.

AT&T shares hit a record $68 on March 25. Since then, the stock is down 19 percent. Since Armstrong joined the company, AT&T is up 12 percent, while the Dow Jones industrial average has risen 21 percent.

"This stock could go a lot lower," said John Nichol, portfolio manager at Ohio Public Employees Retirement System, which owns 4.81 million AT&T shares.

Pub Date: 7/03/98

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