Cox, Comcast Get $2.9B in AT&T Stock

1/21/2001 7:00 PM Eastern

After much speculation about what they would do with about $3 billion in put-rights for Excite@Home Corp. stock, Comcast Corp. and Cox Communications Inc. have decided to exchange those rights for shares of AT&T Corp.

The deal calls for Cox and Comcast to trade a total of 60 million Excite@Home shares in for $2.9 billion worth of AT&T common shares.

The two MSOs had the right to sell a total of approximately 60 million shares of Excite@Home to AT&T as part of a reorganization agreement announced in March.

After the transactions, AT&T will hold about 38 percent of the economic interest in the data-over-cable and Web portal company, compared to roughly 23 percent today. AT&T's 74-percent voting interest will increase to about 79 percent.

The number of AT&T shares issued in the transactions will depend on the average price during a 30-day trading period that began in mid-December. AT&T spokeswoman Eileen Connolly said the average price should be determined in early February.

On March 29, AT&T cut a deal to increase its voting control of Excite@Home from 56 percent to 74 percent. In the deal, AT&T agreed to eventually buy Cox and Comcast's put rights for up to $48 per share. At the time, Excite@Home was trading at $37.69 per share.

The deal sent many analysts into a tizzy. They pointed out that AT&T's debt service was already heavy, and that tacking on another $3 billion in obligations to Cox and Comcast could only hurt AT&T's financial picture.

In December, speculation was that Cox and Comcast would take their payment in AT&T Broadband cable systems, a scenario that could still occur down the road.

Last March, Cox wrapped up a deal to get outright ownership or minority stakes in systems with about 485,000 subscribers. In exchange, Cox yielded $2.7 billion in AT&T shares it acquired when AT&T bought Teleport Communications Group. Cox also got cash in the stock-for-systems deal.

Comcast, another former TCG owner and one of several potential buyers of AT&T's cable systems, has assembled a war chest of about $2.5 billion in the past few months. Comcast completed two bond offerings in the last month worth about $2.8 billion.

Most analysts were pleased about the AT&T share exchange, which gives Cox and Comcast a more liquid stock than Excite@Home-and an asset that is seen as undervalued.

AT&T gets to remove $3 billion from its debt rolls without having to surrender a large amount of cash. Exchanging stock also makes the deal tax efficient.

"They [Cox and Comcast] are taking a nebulously valued stock in Excite@Home and translated it with a concretely undervalued and more liquid stock in AT&T," said SG Cowen Securities Corp. analyst Gary Farber.

In the long run, Farber said, the deal may end up being better for Cox and Comcast, especially after AT&T finally spins out its AT&T Broadband unit as a separate asset-based stock sometime in 2002.

"When [Broadband] gets spun out, Cox and Comcast are probably going to make money on top of money," Farber said. "Every time you think they've done the best deal they can do with their assets, in the past two or three years, the cable guys have gone out and done a better deal."

AT&T stock has traded at about 13 times cash flow, nearly three points below the rest of its cable peers, Farber wrote in a report. He values AT&T's long-distance and business-telephony businesses at about 3 times cash flow, which means the market currently values AT&T Broadband at between 9 and 10 times cash flow, a six-point discount to comparable cable companies.

AT&T shares closed at $24.44 on Jan. 12, up $1.19. The stock fell back to $23.81 in early trading Jan. 16, off 63 cents. Excite@Home was up $1, to $8.72 from $7.72 on Jan. 12. The stock climbed another 25 cents, to $8.97 each, in early trading Jan. 16.

Excite@Home Warrant Values

Current Warrants Value at 1/17/01 ($8.56 per share) Value at $48 option price


31.3 million

$268 million

$1.5 billion


29.1 million

$249.1 million

$1.4 billion

Source: Company reports, NASDAQ

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