Why Comcast Should Prevail

Banc of America Securities Corp. cable analyst Doug Shapiro mapped out some criteria for handicapping the potential bidders for AT&T Broadband in a research note last week.

Shapiro — who believes it is unlikely that Comcast will be outbid for AT&T's cable unit — wrote in his report that competing suitors would have to pass through a "triple screen," adding that a bona fide suitor:

• "Probably needs to be a cable operator, because anyone else will have little credibility it can quickly improve AT&T Broadband's profitability;
• Needs to have a strong balance sheet;
• Either needs to be small enough to satisfy the requirements for a reverse Morris Trust transaction or [to] create a subsidiary that is small enough (i.e., small enough so that more than 50 percent of the combined equity and vote of the entity is controlled by AT&T shareholders)."

Shapiro said those screens leave few alternatives, and added that even though AOL Time Warner Inc. could spin off its Time Warner Cable unit and merge it with AT&T Broadband, that structure is unlikely to satisfy the Morris Trust requirement.

More importantly, Shapiro wrote that after withstanding a year of regulatory scrutiny as part of its merger with Time Warner Inc., he "suspects that AOL isn't eager to bog down in the regulatory morass from which it just emerged."

Charter Communications Inc. and Cox Communications Inc. could make a joint or separate bid, but would likely need a deep-pocketed partner to swing a deal, Shapiro wrote. He added that the two MSOs likely would receive as much benefit from just doing systems swaps and sales with the combined Comcast-AT&T Broadband.