Cablevision Battling AT&T

Cablevision Systems Corp. tossed
a legal grenade into AT&T Corp.’s attempts
to take control of [email protected] Corp.
cable operations.

Cablevision filed the lawsuit earlier this week in the
Delaware State Court alleging breach of contract against [email protected] , AT&T , Cox
Communications Inc.
, and Comcast
Corp.

AT&T Cable announced its plans to rearrange relations with each [email protected]
partner in March in order to acquiesce control of its cable operations.
That deal was set to close Tuesday after a vote by [email protected]
shareholders, but finalizing the agreement has been delayed due to
Cablevision’s court action.

As a part of the original business realignment, Comcast and Cox struck separate deals with AT&T to
facilitate the telecom giant’s solo control of [email protected]

AT&T’s relationship with Cablevision disintegrated when the [email protected]
deal was announced. The pact, which blindsided Cablevision executives,
would allow AT&T to own a 74 percent voting stake in [email protected] AT&T
currently has a 56 percent voting stake, but it doesn’t have complete
control of the firm because Comcast and Cox were granted veto powers in
order to get them to approve of the deal.

In exchange for its increased influence, AT&T agreed to buy Comcast and
Cox-owned [email protected] shares to the tune of $1.6 billion in a cash or
stock in 2001. Both cable companies would also get lucrative warrants to
buy discounted shares of [email protected] stock when they agree to distribute
co-branded cable services through 2006.

AT&T also owns a 33 percent stake in Cablevision, but it has no operating
control. Cablevision founder Charles Dolan and son James, own a majority of
the firm. No lucrative terms or veto powers were extended to the Dolans.

While company policies prohibit both Cox and Comcast from commenting on
pending litigation, an AT&T spokesman said the company thinks its
arrangement with each entity is “fair to all concerned.”

The same AT&T spokesperson acknowledged that the company does not believe
it needs Cablevision’s consent to take control of [email protected]

[email protected] issued a statement declaring that the there is no legal merit
to the suit and that the firm would defend the master distribution
agreement extension signed with its cable partners earlier this year.

“There is no legal merit to Cablevision’s claim. [email protected] will
vigorously defend this action. [email protected] will move ahead as expeditiously
as possible to complete the MDA Extension,” the statement read. “The
completion of the extensions reflects a corporate commitment that growing
subscribers on high-speed cable Internet services is a key objective over
the coming years.”

According to [email protected] the Cablevision suit contests the MDA extension
because it constitutes an amendment to the Stockholders Agreement, to which
Cablevision is a party. Cablevision contends that its consent is required
for any such amendment.

Cablevision is seeking a temporary restraining order that would immediately
bar the filing of a certificate of correction to [email protected]’s certificate
of incorporation to amend its bylaws.

The lawsuit comes as AT&T is attempting to use the Cablevision’s last-mile
delivery systems in New York.

Scott Cleland, Legg Mason Precursor
Group
managing director, said Cablevision’s lawsuit struck him as odd.

“It’s a strange lawsuit because AT&T and Cablevision have cooperated in the
past, with AT&T owning one-third of Cablevision, it’s odd to see them file
suite,” Cleland said. It’s hard to say w

eather communication broke down due
to the March agreement with other cable firms, or a competitive factor over
New York cable services.”

“I think we’ve only seen a glimpse of what’s really going on between the
two companies,” Cleland added. “It’s like a rift between family members,
right now arms are flailing about, but we don’t know the real issue because
no one is talking.”

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