Last week, AT&T officials said they expected the spin off of
its cable unit by Friday, though they made no promises; this week, the
company has some housecleaning to attend to before the second- and
third-largest cable operators in the country officially merge.
The merger still awaits approval from the Federal Communications Commission
(FCC) and Federal Trade Commission (FTC), though reports indicate FCC
staffers have already made the recommendation to approve the merger.
But until then, AT&T Broadband and Comcast executives have been trying to
woo bondholders — the companies and banks holding debt notes on AT&T
Broadband — to sign off on a “surprise” bond exchange.
The terms of the bond exchange program, which swaps AT&T Broadband notes to
Comcast, were never released to bondholders. That means transferring
bondholders would have to take it on faith the AT&T Comcast executives
would give them a fair deal.
To no one’s surprise, the two companies failed to garner the 90 percent of
transferred bonds needed to close the merger; instead, they got 83.5 percent.
Bill Mann, the Motley Fool’s senior editor for investing, said he’s
surprised they got 83 percent in the first place.
“This bond exchange program has broken new ground, as far as the bond
offerings I’ve seen over my career. I think a lot of people looked at this
and said, ‘you’re not giving us a lot of information, therefore we’re going
to assume you’re trying to take advantage of us.'”
Because they didn’t reach the 90 percent they’d hoped for, the two
companies decided to lower the percentage needed to seal the deal on the
merger to 66.75 percent, an amount they’ve already exceeded. Executives
also pushed the deadline to sign up for the exchange program to Friday.
“(Comcast) is keeping it open a little longer, but they consider it
closed,” Mann said, in hopes a couple more bondholders will sign on to the
program.
Comcast is holding out as long as possible, knowing it has an uphill battle
ahead of them when the two companies are merged. According to David
Willis, vice president of global networking strategies at the META Group,
the combined company will have to significantly increase new subscriber
rates in order to eat into the debt load.
“In a way, the Comcast guys are getting the short end of the stick here,”
he said. “They’re taking all the risks in this deal, while the mothership
AT&T suddenly looks pretty good.
