AT&T Asset Spinoffs Look Likely

AT&T Corp. had a busy time last week, dodging a potential $7 billion tax bill associated with its planned spinoff of Liberty Media Group Inc. and registering shares it owns in another cable operator that could bring $2 billion in a potential sale.

The Internal Revenue Service last week ruled that the Liberty spinoff would be tax-free to shareholders, paving the way for the separation of the programming unit this summer. Earlier, AT&T had registered its 30 million shares in Cablevision Systems Corp. for a potential sale.

AT&T had been waiting for the IRS ruling since November, when it said it would spin off Liberty to satisfy some of the conditions the Federal Communications Commission imposed on the company in its approval of the AT&T-MediaOne Group Inc. merger.

Without IRS approval, by expressing its intention to spin off the programming arm prior to the two-year anniversary of its March 1999 merger with Tele-Communications Inc., AT&T could have faced a tax bill between $5 billion and $7 billion.

AT&T intends to spin off Liberty as a separate asset-based stock by mid-summer, the company said in a press release. After that transaction is completed, Liberty chairman John Malone will resign from the AT&T board of directors.

Malone remains one of the largest individual holders of AT&T stock.

AT&T said an independent Liberty could have better access to capital, use its stock as deal currency and be valued more easily by analysts.

AT&T said it needs to complete certain reorganizational steps, which require some reviews, before it can complete the split.

UBS PaineWebber cable analyst Christopher Dixon set a 12-month price target of $20 per share on Liberty, based on a net asset value of $16 per share and the assumption of a 25 percent return on equity.

Liberty, currently an AT&T tracking stock, closed at $14.73 each on April 12, up 72 cents.

Most analysts seem to believe Liberty will go easy on the acquisition front for a while.

"There aren't a lot of elephants left in the savannah," Janco Partners Inc. analyst Matthew Harrigan said with respect to acquisition opportunities. "Liberty will rationalize its portfolio."

Selling off the Cablevision stake could help AT&T serve an immediate purpose — paying off its debt.

Although AT&T said in a securities filing there was no guarantee it would sell the Cablevision shares, an company spokeswoman said "it is definitely an option."

Cablevision officials declined to comment.

AT&T acquired the stake in Cablevision from TCI.

It seems unlikely AT&T would try to sell the shares on the open market. Selling them to an individual company or to a group of companies through an investment banker could be an option.

Analysts expressed some surprise that AT&T had not used the Cablevision shares as leverage in negotiations with AOL Time Warner Inc. regarding AT&T's 25.5-percent stake in Time Warner Entertainment. AT&T and AOL Time Warner have been wrangling for months over TWE, which owns the Warner Bros. film studio, Home Box Office Inc. and many Time Warner Cable systems.

AT&T's interest in Cablevision is non-voting but includes two seats on Cablevision's board of directors. It could make a future buyout of Cablevision's cable operations easier — something that must appeal to AOL Time Warner, which owns New York City cable systems in the heart of Cablevision's core market.