TCI Buy Gives AT&T Direct Path to Homes

AT&T announced today it signed a merger agreement with the country’s number two cable operator, Tele-Communications, Inc. (TCI) worth about $48 billion in an all-stock transaction.

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.

Under terms of the agreement, AT&T will issue 0.7757 shares of its
common stock for each share of TCI Group Series A stock and 0.8533 shares
of AT&T for each share of TCI
Group Series B stock. The companies said they expect the merger,
contingent upon
regulatory and other approvals, to be tax-free to their shareholders and to
reach completion by the first half of 1999.

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

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
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
“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

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

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.

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