TCI Buy Gives AT&T Direct Path to Homes
Page 1 of 1
AT&T plans to combine its consumer long distance, wireless and Internet services divisions with TCI's cable, telecommunications, and high-speed Internet businesses, and create a new entity, AT&T Consumer Services.
The agreement gives AT&T direct access to homes completing the so-called "last mile" of connectivity which can be used for local phone service as well as cable TV and data services. AT&T has had to rely on local telephone companies for local access since the government-mandated breakup of its monopoly.
C. Michael Armstrong, AT&T's chairman and CEO, gave an accounting of the $48 billion merger pricetag in a mid-day press conference. "We are spending $31.8 billion to acquire the cable business, $11 billion in covering TCI debt, $42 billion to buy back Teleport, and $5.5 billion to acquire TCI's controlling interest in At Home Corp.," said Armstrong.
The new company will be traded as a "letter" or "tracking stock" on the New York Stock Exchange and have public ownership. AT&T will issue separate tracking stock to holders of TCI's programming company, Liberty Media Group, to continue the holders' interests in the assets now represented by those shares.
The newly-created AT&T Consumer Services expects to offer a menu of telecommunications services, including local, long distance, wireless and international communications, cable television, dial-up and high-speed Internet access services.
AT&T's WorldNet Internet access service is to be included as part of the new division. When the deal is complete, AT&T will hold a controlling interest in the @Home Network, which provides high-speed cable Internet access to TCI affiliates and other cable companies. Microsoft and Compaq recently purchased ten percent shares of @Home's rival, RoadRunner.
With the merger, AT&T said its AT&T Consumer Services will own and operate the nation's most extensive, broadband local network platform. Plans for the post-merger call for the division to upgrade its cable infrastructure, in order to provide customers with digital telephony, data services, and digital video services by the end of 1999.
The new unit will include all of the cable television systems AT&T is acquiring in the merger with TCI, as well as AT&T's fixed wireless technology and related spectrum rights covering more than 90% of the nation. When the merger transaction is finalized, the company said AT&T Consumer Services' will be entirely owned and its affiliated cable systems will cover an estimated 33 million homes.
The telco giant estimates that on a pro forma basis, AT&T Consumer Services could rake in about $33 billion in earnings, on a pre-tax, pre-depreciation and before amortization of about $7 billion. The companies said they believe that their combined efforts will not only increase revenue, but lower costs, and with their synergies earn $2 billion a year, three years after the merger's completion.
Plans call for John D. Zeglis, the present AT&T president to take the role of chairman and CEO of AT&T Consumer Services and to remain on the AT&T Board of Directors. Leo J. Hindery, Jr., now TCI's president, will be the new unit's president and CEO. Dr. John Malone, chairman and CEO of TCI, is to become a member of the AT&T Board of Directors. The companies said they do not expect any major downsizing with either company due to the merger.
"We are merging with TCI not only for what it is but for what we can become together," said C. Michael Armstrong, chairman and CEO of AT&T. "Through its own systems and in partnership with affiliates, AT&T Consumer Services will bring to people's homes the first fully integrated package of communications, electronic commerce and video entertainment services. And it will do it with the quality and reliability that people have come to expect from AT&T."
"Some say we're paying a premium for this merger...yes, we're paying a premium of about $8.5 million," said Armstrong in a press conference this morning. "It's a premium we think is a good investment."
"This merger is a tremendous growth opportunity for TCI's shareowners and employees," said John C. Malone, chairman and CEO of TCI. "As TCI continues the large-scale deployment of advanced digital set-top devices, AT&T's extraordinary brand and resources are ideal complements to TCI's broadband cable distribution and operations. AT&T Consumer Services will offer consumers a wide variety of entertainment, information and communications products, which thoughtfully address personal tastes, needs, choice and convenience."
In a separate announcement, AT&T said it expects its second quarter earnings to exceed analyst estimates of 80 cents to 82 cents per share by 8 cents to 10 cents because of earlier and better than expected benefits from its on-going cost-cutting efforts. It projects 1998 earnings of $3.35 to $3.45 per share, adjusted for the results of the company's forthcoming merger with TCG.
In a third separate announcement, TCI said it plans to combine its programming division, Liberty Media Group with the TCI Ventures Group, its technology investments segment, which is not contingent upon the merger between AT&T and TCI.
Dr. John C. Malone, TCI's Chairman and CEO is to become Chairman of the new group, which will be named Media Group. Robert R. Bennett, President and CEO of Liberty, is to take the title of President and CEO of the new entity.
After completion of the AT&T/TCI merger, the shareholders of the newly created Liberty Media Group will be issued separate tracking stock by AT&T in exchange for shares now held. Also, before the closing, Liberty's stake in @Home Corp. (Nasdaq: ATHM), its investment in the National Digital Television Center, and its ownership of Western Tele-Communications, Inc. is slated to be acquired by TCI Group for $2.5 billion cash in a tax-free transaction.