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AT&T merges cable unit with Comcast

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Capping months of bidding wars, AT&T Wednesday announced it will merge its cable television and broadband unit with Comcast, to create a cable giant serving nearly 22 million customers.

AT&T's sale of its cable division, AT&T Broadband, is the final nail in the coffin of chairman and CEO C. Michael Armstrong's plan to compete with local telephone companies through its ownership of cable networks throughout the U.S.

Under Armstrong's watch, AT&T spent $100 billion to buy TCI and MediaOne and build-out its broadband network, which supports cable television, Internet access and voice traffic in some areas.

This merger will create a company called AT&T Comcast, which values AT&T Broadband at about $72 billion, $28 billion less than Armstrong spent to buy TCI and MediaOne. And AT&T has spent millions upgrading both of these networks and developing new services for business and residential customers.

But the writing has been on the wall for over a year that AT&T bit off more than it could chew with its cable investments. In October 2000, AT&T announced it would spin off AT&T Broadband along with its consumer division. At that point the company already had plans to spin off its wireless division.

If the merger receives regulatory approval and is approved by shareholders at both companies, the deal is expected to close by the end of 2002.

The boards of directors of both companies approved the merger; AT&T's board voted unanimously in favor of the deal.

Under the terms of the deal, AT&T shareholders will receive stock in the new company, getting about 0.34 shares of AT&T Comcast stock for each share of AT&T that they own. In addition to the AT&T Comcast shares they receive, shareholders will continue to own their existing AT&T shares.

Comcast shareholders will receive one share of AT&T Comcast stock in exchange for each share of Comcast they own. AT&T shareholders will control 56% of the new company and about 66% of the voting interests. The Roberts family, which owns Comcast, will control one-third of the new company's voting interests.

Microsoft, which owns $5 billion in AT&T securities, has agreed to convert those into 115 million AT&T Comcast shares.

C. Michael Armstrong, chairman and CEO of AT&T, will serve as chairman of AT&T Comcast and Brian Roberts, president of Comcast, will serve as CEO of the company when the merger closes.

It's rumored that Armstrong will step down as chairman and CEO of AT&T proper at the end of 2002, leaving that position open for David Dorman, who currently serves as president at AT&T.

Assets controlled by the newly merged company will include cable television systems from both companies, AT&T's 25.5% stake in Time Warner Entertainment and Comcast's interests in several major entertainment properties.

AOL Time Warner, Cox Communications and Comcast have been jockeying to merge with AT&T Broadband, upping their offers last week at the request of AT&T, according to a report earlier this week in the New York Times. AT&T Broadband first became a merger target in July.

Responding to the merger announcement Wednesday, Cox issued a statement expressing disappointment at the news and adding, "Cox is confident that its bid was fair and was made in the best interests of all Cox and AT&T stakeholders."

The IDG News Service is a Network World affiliate.

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