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Tuesday, Jul. 14, 1998
Threat cited to deal by AT&T, TCI
But many analysts expect merger to be completed
By DAVID KALISH
Associated PressNEW YORK -- Trying to keep nervous stockholders from scuttling their $31.7 billion marriage, Tele-Communications Inc. and AT&T Corp. are still fleshing out key details of the three-week-old deal.
TCI chairman John Malone acknowledged in a published report Monday that a sharp drop in AT&T's stock price since the June 24 announcement ``scares me to death because I think it could well kill the deal.''
To help assuage investors' fears, negotiators are still tinkering with details of AT&T's acquisition that were not in place at the time of the announcement. Still up in the air is the complicated structure of a new class of stock that will follow the financial performance of each division of the combined entity.
Depending on how these ``tracking'' stocks are structured, shareholders in AT&T's mainstream telephone business will be at least partly insulated from seeing profits drained by the massive AT&T investments needed to upgrade TCI's cable lines.
That could help answer some concerns of AT&T stockholders, who have bid down the company's shares more than 13 percent since the agreement, including a 25-cent drop to $56.75 Monday on the New York Stock Exchange. Shareholders for both companies must approve the mostly stock deal, which the companies want to complete by early next year.
Despite repeated assurances by AT&T executives, shareholders worry the telecommunications company could end up spending billions of dollars above the $1.8 billion investment needed to convert TCI's cable lines into a two-way network carrying advanced entertainment, high-speed Internet and telephone services into millions of U.S. homes. AT&T itself has said it is additionally spending $300 to $500 a home, or about $5 billion, to equip households for the new services.
``It was a mistake not to have fully worked out the details of the tracking stock so it could be disclosed at the same time'' as the deal's announcement, Malone told Broadcasting & Cable, a trade publication, in a July 2 interview.
``I think you'll see this thing turn around and become very positive.''
Malone's description of the AT&T deal as evolving contrasted with remarks last week by AT&T chairman Michael Armstrong that the deal was final and not open to renegotiation.
Spokespeople for the companies insisted the deal was not being renegotiated, simply fleshed out. But they declined to elaborate on why such important details were not resolved at the time of the agreement, except to note the deal's overall complexity. Armstrong and Malone were unavailable for comment, spokesmen said.
Adding more complexity, TCI's Liberty Media programming arm on Monday proposed buying the part of the company's international unit not already owned by TCI's investment unit.
But spelling out the tracking stock's structure will only answer some concerns of AT&T stockholders, analysts note. Without a firm grasp on what AT&T must spend or what it can reasonably charge consumers to recoup its costs, some investors are likely to remain skeptical.
Without answering the spending questions, ``you almost don't care what the tracking stock looks like,'' said Daniel Zito, a financial analyst with Legg Mason Woodwalker Inc., based in Baltimore.
Some say a more fundamental restructuring of the deal may be required. One source close to the negotiations, speaking on condition of anonymity, said Malone -- who controls 49 percent of TCI's voting stock -- is pushing AT&T to sweeten its offer so TCI stockholders receive the premium they thought they were receiving before AT&T's stock started dropping.
Company executives deny this is being considered. Either way, many observers believe AT&T will manage to complete the deal because it has few other choices to expand its long-distance business to other areas.
These new areas notably include the delivery of local phone service through cable-TV lines, key to AT&T's ambitions -- so far frustrated -- to crack the lucrative market now controlled by the Baby Bell regional phone companies.
``I think Mike Armstrong was very clear and should be taken literally when he says it's signed, sealed and delivered,'' said Reed Hundt, a telecommunications consultant and former chairman of the Federal Communications Commission.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web