Analysts: AT&T Tweaking Terms

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Wall Street analysts expect that AT&T Corp.'s
continued campaign to reassure investors about the Tele-Communications Inc. merger will
include mechanisms to minimize the downside to AT&T shareholders.

One analyst who was briefed on the plans by TCI expects
AT&T to create something akin to "convertible preferred" shares, through
which the new AT&T Consumer Services Co., which includes TCI operations, would pay
"dividends" to AT&T.

In reality, another analyst said, the way that it would
work is that more of Consumer Services Co.'s earnings would be allocated to AT&T.
AT&T might refer to that setup as preferred shares, and to the earnings allocation as
a dividend, he added.

That allocation formula also has to work for Consumer
Services Co.'s shareholders, though, so "maybe AT&T gets a disproportionate
amount of earnings to a point, then [holders of the tracking stock that's part of the
deal] get a disproportionate allocation after that," the analyst said.

Details will probably be released sometime in September,
the analysts said.

The idea of the "convertible preferred dividends"
is to mitigate against the dilution of earnings that would result from issuing new shares
to buy TCI.

AT&T will probably require its shareholders to give
back some of their shares in order to get shares in the new Consumer Services Co. This
would reduce the AT&T share base and further cut dilution, another analyst said.

In an interview published last week in Broadcasting
& Cable
magazine, TCI chairman and CEO John C. Malone said, "It was a mistake
not to have fully worked out the details of the tracking stock," so that it could
have been laid out along with other merger details June 24.

Malone also said he believes that Consumer Services Co. --
which won't generate net income, and which probably won't pay dividends -- will
be attractive to "the bulk of existing AT&T traditional shareholders."

It appears that many of the shareholders who don't
want their AT&T shares diluted bailed out in the early days of the deal, which is why
AT&T's share price fell 16 percent between before the deal was announced June 24
to the July 6 closing price of $55.94.

But last week, AT&T's share price rose from $56.75
to Thursday's closing price of $59.44 -- a 5 percent gain. Bear Stearns & Co.
telecommunications analyst William Deatherage said he figured that the price would
"stabilize in the low $60s."

In the interview, which took place July 2, Malone said he
was "scared to death" that a plummeting AT&T stock price would lead AT&T
holders to vote down the deal (in which case TCI would get a $1.75 billion breakup fee).
Malone said he didn't think that would happen, especially after the benefits of the
deal sink in.

Deatherage said shareholders who don't like big
mergers tend to vote with their feet, and not with their proxies.

"I think that those shareholders that would vote
against the transaction will not be shareholders when it comes up for a vote," he
added.

TCI's shares ticked up 6 percent, to $41.38 from
$39.06, between last Monday's close and last Thursday's close.

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