Microsoft Corp. Thursday announced it will take a $5 billion stake in AT&T Corp. and said the two companies will work together on a number of next-generation broadband and Internet services projects.
The non-exclusive agreements also call for AT&T to increase
its use of Microsoft’s TV software platform in advanced set-top devices.
Both companies said they will work together in showcasing new digital cable services in two unnamed U.S. cities.
AT&T plans to expand its use of Microsoft’s Windows CE-based operating system
software in
its digital set-top devices. AT&T had already committed to deploy Windows CE on 5 million
set-top devices and will now increase that deployment by an additional 2.5 million to 5 million units. The set-top
devices support a number of communications, entertainment and information services. AT&T will use set-top software from a number of suppliers.
The telco giant said when its proposed merger with MediaOne is
finalized and once previously-announced cable swaps and sales negotiated with Comcast are complete, its systems will serve approximately 25 million homes.
As part of its agreement, AT&T will also license Microsoft client/server
software to support various digital services including e-mail and
interactive television entertainment. The companies plan to deploy
Microsoft’s client/server TV software in two cities by the second quarter
of 2000. AT&T said it also
expects to incorporate Microsoft’s client software in conjunction with
third-party server software in a third, unnamed city. Microsoft’s software
will provide an open platform that will support a wide variety
of hardware devices, applications and services.
Microsoft will pay $5 billion
for newly issued AT&T convertible trust preferred securities and warrants. The preferred securities will have a face value of $5 billion and will be priced at $50 per security, equaling a quarterly payment of 62.5 cents per security.
The preferred securities,
which will be convertible into 66.7 million shares of AT&T common stock at a price of $75 per
share, will have a maturity of 30 years and the conversion feature can be terminated, under certain
conditions, after three years. The warrants will be exercisable in three
years to purchase 40 million
AT&T common shares at a price of $75 per share.
AT&T will use the proceeds to fund working capital and capital expenditures.
In addition, as part of these agreements, Microsoft will purchase
MediaOne’s 29.9 percent interest
in Telewest Communications PLC through a tax-free exchange of Microsoft
shares, subject to
approvals.
“Our agreement today represents an important step in Microsoft’s vision of making the Web
lifestyle a reality,” said Microsoft Chairman and Chief Executive Officer Bill Gates. “Working with AT&T, a leader in
the delivery of cable and telephony technologies, we will expand access to an even richer Internet and television experience for millions of people.”
“We’re gratified that Microsoft shares our strategy of using broadband
cable to bring a new
generation of digital communications, information and entertainment
services to millions of
American families,” said AT&T Chairman and Chief Executive Officer C. Michael Armstrong.
“We look forward to expanding our relationship with Microsoft and adding its creativity and technical know-how to our own. This will accelerate the work we’re already doing with many other software and hardware
companies.”
