Comcast late yesterday announced that it would not make a further offer for cable television and Internet access company MediaOne. Instead, AT&T and Comcast have reached an agreement whereby the two companies will exchange cable systems.
The agreement will see Comcast potentially increasing the number of its cable subscribers by around 2 million households, the companies said. In addition, the two companies will work together to offer a competitive local phone service to Comcast customers.
MediaOne said it was terminating its merger agreement with Comcast in favor of AT&T's bid unless Comcast could come up with a better offer.
The bidding war for MediaOne dates back to March when Comcast first announced a $60 billion stock swap offer to purchase the cable television and 'Net access company. Then last month, AT&T topped that bid with a deal involving cash and stock worth about $58 billion on the day it was announced, plus another $4.5 billion to assume MediaOne debt.
On Friday, MediaOne said it would share information with Microsoft and America Online about the merger plan with Comcast in case the two vendors decided to join the bidding.
Comcast said in a statement that it would not submit a revised offer to buy MediaOne. Comcast added that it expects MediaOne to terminate the companies' previous merger agreement and that Comcast will receive a $1.5 billion termination fee as stated in the original merger agreement.
Under the terms of yesterday's deal, Comcast and AT&T will exchange various cable systems in order to improve both companies' geographical coverage by better clustering their systems, the duo said in the statement.
The move will give Comcast an extra 750,000 subscribers and in regard to this, the company will pay AT&T a consideration of around $4,500 per added subscriber up to a maximum value of between $3 billion and $3.5 billion, according to the statement. The exchanges of cable systems are by and large dependent on the completion of the merger agreement between AT&T and MediaOne.
Additionally, AT&T is giving Comcast the option of buying other cable systems with a total subscriber base of around 1.25 million over the next three years. Comcast would need to pay a consideration for these extra subscribers of around $5.7 billion, the statement said. This deal is also contingent on the completion of the merger between AT&T and MediaOne.
For its part, Comcast is to offer AT&T-branded telephony in all its markets, once AT&T has finished separate telephony agreements with two other unnamed multiple system operators, the statement said.
Comcast President Brian Roberts said in the statement that the deals would make Comcast the third-largest cable company in the U.S., with more than 8 million subscribers, as well as advancing Comcast's plans to enter the telephony market. "This is a different outcome than our MediaOne proposal, but it is an elegant win-win result," he said in the statement.
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