AT&T Corp. will compensate Comcast Corp. and Microsoft Corp. if they bow out of a bidding war against the phone giant for MediaOne Group, according to sources close to the deal.
Propelling its bid to become the nation's largest cable systems operator, AT&T has agreed to sweeten the terms of a set-top-box agreement it has with Microsoft, one source said Monday. Microsoft, which holds about a 10% stake in Comcast, was the Philadelphia-based cable company's best hope of countering AT&T's winning $63.7-billion offer for MediaOne.
AT&T is also negotiating to swap some geographically strategic cable systems with Comcast to make it easier for the family-run rival to walk away from what it called the "acquisition of a lifetime" when it agreed to merge with MediaOne in late March. The size and locations of those systems could not be determined late Monday.
MediaOne's board agreed Saturday to accept AT&T's cash-and-stock offer, which it deemed as superior to Comcast's previous all-stock bid worth $47.9 billion.
If AT&T prevails--with antitrust hurdles among the biggest challenges it will face--MediaOne will pay Comcast a $1.5-billion penalty for terminating the deal.
Under the pact with Comcast, MediaOne gave other suitors until Wednesday to make a counteroffer for the company. That agreement also gave Comcast five days to respond to any new bid, meaning a Thursday deadline for countering AT&T's offer.
Sources said AT&T's offer to swap systems with Comcast is a peacekeeping and face-saving consolation prize that could allow the two companies to strike a joint venture for providing local phone service over cable wires. AT&T has struck such an alliance with the nation's largest cable operator, Time Warner, and envisions cobbling together a nationwide brand to compete against a patchwork of regional providers.
Comcast and MediaOne, which together reach roughly 15% of the nation's homes, were contemplating pursuing their own phone strategy when they agreed to merge in late March in what some analysts say provoked AT&T's surprise offer to buy MediaOne.
Comcast has been scrambling to find a partner to support its bid, turning to Microsoft and America Online Inc. as possible allies. While both companies signed confidentiality agreements with MediaOne late last week, AOL has since withdrawn because of what sources called the high cost of a counter-bid and the uncertain returns.
