AT&T Corp. completed its purchase of MediaOne Group Inc. for about $44 billion, becoming the largest U.S. cable television provider serving more than 40% of pay-TV customers.
The acquisition was completed for about $23 billion in cash and 606 million shares worth $20.3 billion, based on AT&T's closing share price Wednesday, the company said. That's far lower than the $58-billion value when the deal was announced in April 1999.
Because of a 41% slide in AT&T's stock since then, the company was obligated to pay an additional $3.5 billion in cash for MediaOne. The cash portion of the deal was to rise if AT&T shares traded below $51.30. They rose 69 cents to close at $34.19 on the New York Stock Exchange.
Even with the additional $3.5 billion--or $5.42 a share--MediaOne shareholders still received only $68.10 for each share, which is below the initial price of $85 when the deal was announced. The biggest loser is cable pioneer Amos Hostetter, MediaOne's largest shareholder, with an estimated 15% stake. Sources say Hostetter, now on the AT&T board, is frustrated with AT&T's poor performance.
More bad news for AT&T came recently when the Federal Communications Commission said it will require AT&T to sell cable assets or change its relation to a programming unit to comply with cable ownership rules. AT&T has six months to tell the FCC how it will meet the requirements and until next May to complete the process.
To comply, AT&T will have to sell off cable subscribers, likely getting much less than it paid for them. Cable assets are currently trading at half the value that AT&T has been paying.
AT&T Chairman C. Michael Armstrong has committed more than $100 billion to buy and upgrade cable TV networks to deliver telephone, video and data to homes on one wire, as consumer long-distance calling prices fall. AT&T spent $59.4 billion to buy cable TV operator Tele-Communications Inc. in March 1999.
The FCC gave New York-based AT&T three options to comply with its order. The company can sell its 25.5% stake in Time Warner Entertainment, a joint venture that owns cable systems; take steps to separate itself from programming units such as Liberty Media Group Inc., run by cable pioneer John Malone; or sell systems reaching 9.7 million U.S. viewers.
AT&T must limit its activities in any programming decisions made by Time Warner Entertainment until May, with fines as high as $100,000 a day for failing to comply, the FCC said.
Time Warner, which claimed to have rights to block AT&T's purchase of MediaOne under its partnership agreement, said it gave its consent. That clears the way for a complicated series of negotiations between the two leading cable operators.
