Comcast-AT&T merger expected to gain shareholders' OK today

Deal is 1st blockbuster to be attempted in era of corporate misdeeds

July 10, 2002|By Andrew Ratner | Andrew Ratner,SUN STAFF

The multibillion-dollar merger of Comcast Corp. and AT&T Broadband, to be voted on by shareholders today, is being called the first blockbuster deal to be attempted in an era of corporate mistrust.

That won't slow it a bit, many predict.

"It's a done deal," said Jeff Chester, executive director of the Center for Digital Democracy, a Washington-based group that is opposing the arrangement. "There's no question that this merger is going to be readily approved."

But the apparent glide path doesn't mean the marriage is without contention. Proposed a year ago, it is being consummated during a summer headlined by the collapse of telecommunications giants that didn't turn out to be as sound as the accounting implied.

Moreover, consumer groups are protesting the creation of a cable company that would be almost twice as big as the next-largest provider, Time Warner Cable - itself the product of a huge merger six years ago. AT&T Comcast would have about 22 million subscribers, compared to 13 million for Time Warner. Opponents contend that AT&T Comcast would too greatly control the flow of media into American households via cable television and the Internet.

Shareholders of both companies, however, are expected to approve the merger in separate votes today.

The deal is also expected later this year to win necessary approvals from federal officials and from every community served by the companies.

Local officials must reaffirm their franchises with Comcast or AT&T because of the ownership change. The deal has run into pockets of resistance, in Seattle and Pittsburgh, among other places, but Comcast said it is ahead of its projected pace in collecting municipal blessings.

Baltimore and the surrounding counties of Anne Arundel, Baltimore, Harford and Howard approved the change during the past month with little comment or opposition. Carroll County doesn't have to vote because it is served by a different company with its own concerns, bankrupt Adelphia Communications Corp.

"Our perspective on it was that it doesn't impact the Baltimore system. The change in ownership structure is the only issue," said Marilyn Harris-Davis, executive director of the Mayor's Office of Cable and Communications in Baltimore.

One vote this morning will take place at a hotel in downtown Philadelphia, Comcast's base and the future home of the new company. Approval is assumed to be automatic because company President Brian L. Roberts, who would lead the new entity, controls 86 percent of the voting shares.

AT&T shareholders will also vote this morning, at a convention hall in Charleston, S.C. Their approval is expected because their shares, almost halved to $10.01 at its close yesterday from $20 a year ago, would fall further if not for the sale, analysts said.

`In their best interest'

Eileen Connolly, vice president for financial communications, said AT&T is confident that a majority of "shareholders believe this is in their own best interest." But she acknowledged that control of AT&T, one of the most widely held stocks, is more diffused than at Comcast.

About 3.4 million investors hold 2.7 billion outstanding shares, and institutions own fewer than half. Most critical to today's vote is that AT&T needs to receive more than half of all shares in favor, not just half of the shares voted. The company has conducted a vigorous campaign to get out the vote, Connolly said.

Both companies are weaker than they were a year ago when Comcast founder and Chairman Ralph J. Roberts and his son Brian made a stunning bid for AT&T's broadband unit before AT&T chief C. Michael Armstrong was prepared to put it up for sale. AT&T initially rejected Comcast's offer but accepted a modified offer in December after shopping it unsuccessfully for months. The pact was valued at $72 billion when announced last winter, but would be lower now.

Declining share price

Comcast shares have fallen from $40 in December. They closed down 54 cents to $23.19 yesterday on the Nasdaq stock market. Some analysts surmise that the U.S. Justice Department and the Federal Communications Commission would be hard-pressed to block the merger with the future of other telecommunications companies so darkened by scandal.

"The sector has cratered around them. It's like Wile E. Coyote hanging over the cliff," said Scott C. Cleland, a technology analyst with the Precursor Group in Washington. "When this deal was done, it was the be-all and end-all. Then Enron and Adelphia happened. Comcast overpaid big time for AT&T. The fish is swallowing a whale of debt."

The roughly $30 billion in debt for a combined AT&T Comcast is a major worry, especially because the strain of borrowing has impaired other major mergers from achieving what their proponents imagined. But some think this combination might prosper because of simplicity. Comcast would take over a business it knows well. It has rapidly improved profit margins in AT&T systems it has acquired.

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