Comcast wins battle for AT&T Broadband

Tom Johnson and Jessica Hall

NEW YORK/PHILADELPHIA: AT&T Corp. said it would sell its cable television

unit to Comcast Corp. for about $72 billion in stock and debt, ending five

months of negotiations with the media and technology industries' largest

companies and creating a massive cable operator with more than 22 million

subscribers.

The deal catapults Comcast into the cable industry's leading position, and

leaves AT&T with its shrinking consumer and business long-distance telephone

and data operations.

AT&T chairman C Michael Armstrong, who spent $100 billion assembling

AT&T's cable empire, will serve as chairman of the new company when the

merger closes, scrapping plans to retire from AT&T in May 2003. Comcast

President Brian Roberts will be chief executive officer.

Comcast fought a long, patient battle for AT&T Broadband, beating rival

bidders Cox Communications Inc. and AOL Time Warner Inc. Software giant

Microsoft Corp. backed the Comcast and Cox proposals, and made a separate offer

to invest up to $5 billion in AT&T Broadband if AT&T kept it

independent, sources said.

"Comcast was seen as having the most to lose," and the

Philadelphia-based company "worked the hardest to be the winner," said

one source who declined to be named.

In July, Comcast launched an unsolicited offer to buy AT&T Broadband for

$44.5 billion, plus the assumption of $13.5 billion in debt. AT&T rejected

that offer as inadequate and opened talks with other suitors.

The new offer resolved AT&T concerns over the voting structure in

Comcast's original offer and wipes cuts AT&T's debt load by more than half.

Under terms of the deal, Comcast will pay about $47 billion in stock, plus

the assumption of about $20 billion in debt. Microsoft, meanwhile, agreed to

convert $5 billion of AT&T subsidiary trust convertible preferred securities

into shares of the new AT&T Comcast.

AT&T shareholders will hold a 56-per cent economic stake, and a 66-per

cent voting interest in the new company. The Roberts family, which owns Comcast

Class B shares, will control one third of the new company's voting power. Under

the original offer, Comcast would have had a minority equity stake, but majority

voting power.

Armstrong's shift to the new cable business mirrors the shift by AT&T to

high speed broadband communications from its historical role as leader of the

ailing long-distance telephone industry.

"The long distance business has died and (AT&T's) finally getting

the message. This is a graceful exit from that chapter of communications and a

elegant entrance into the the new generation of communications ... it leaves the

old AT&T in the history books where it belongs," said Gartner Group

analyst Ken McGee.

AT&T pushed into the cable industry -- even beating Comcast to buy

MediaOne Group in 1999 -- in a move to provide telephone, data and video

services over cable television lines.

Upgrading the cable networks became more costly and time consuming than Wall

Street expected. AT&T stumbled under its massive debt load and flagging

stock price, and set plans to break its major businesses into separately traded

companies.

AT&T spun off its wireless telephone business in July, and postponed

plans to spin off the cable business when Comcast launched its unsolicited

takeover offer in July. Once AT&T separates the cable television business,

the remaining long-distance businesses will have about $40 billion in revenues

and about $15 billion in debt, AT&T Chief Financial Officer Chuck Noski said

in a telephone interview.

AT&T Business, which provides communications services to corporations,

will retain the familiar "T" stock symbol and own the AT&T

brandname. The consumer telephone operations will trade as a tracking stock of

that core business.

(C) Reuters Limited.