AT&T Board to Weigh Options

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AT&T Corp.'s board of directors was slated to meet last week to mull over at least three potential offers for its AT&T Broadband cable unit — including one from Cox Communications Inc. that's beginning to get more serious, according to some sources.

The AT&T board was expected to convene over two days, starting with a dinner last Thursday night and meetings on Friday.

Cox has been on the short list of potential bidders ever since Comcast Corp. put AT&T Broadband in play on July 9, through its unsolicited $51 billion bid for the cable unit. Shortly after Comcast announced its intentions, Cox hired New York-based investment banker Salomon Smith Barney Inc. as an adviser to investigate its options.

At the time, most observers believed that a Cox bid was unlikely, mainly because it would require the Cox family — the company's largest shareholders — to accept a minority role in a combined Cox/AT&T Broadband.

Because of capital gains tax issues, a deal to acquire AT&T Broadband would require that AT&T shareholders own more than 50 percent of the combined entity.

The Cox family has been loathe to reduce its control of the company, but sources said last week that they are beginning to warm up to the idea, mainly because they are starting to see an acquisition of AT&T Broadband as a chance of a lifetime.

These same observers said no deal is imminent and that the Cox family could just as quickly decide not to get involved. But they added that indications — especially those made at a Merrill Lynch & Co. analyst conference in Pasadena, Calif., on Sept 11 — point to Cox investigating a possible deal.

Cox is also the only company that has signed a confidentiality agreement with AT&T, which would open the door to further negotiations, according to sources.

AT&T officials did not return phone calls seeking comment.

According to one analyst at the conference, Cox officials would not comment on AT&T specifically, but told the group they are well-positioned to make acquisitions.

One analyst's concern over a possible AT&T/Cox deal is that the assumption of AT&T Broadband's roughly $13.5 billion in debt could negatively affect Cox's investment-grade credit rating. But according to one source at the conference, Cox officials downplayed the impact a major deal could have on its credit rating.

"They said that they are still interested in doing deals and that they could still take advantage of opportunities," the source said. "They said that they have unconsolidated assets that give them flexibility."

Among those unconsolidated assets is about $1.5 billion worth of AT&T stock, which Cox acquired through its partnership in Excite@Home Corp.

A Cox spokeswoman declined comment.

But whether Cox decides to make an offer for the Broadband unit, AT&T has at least two other potential deals to mull over, from AOL Time Warner Inc. and The Walt Disney Co. Inc.

AOL's interest surfaced earlier this month, after Liberty Media Corp. chairman and former AT&T board member John Malone said that AT&T had received a "solid proposal" from AOL.

The AOL proposal would involve combining the cable operations of AT&T and Time Warner Cable, creating a 26 million-subscriber powerhouse. AOL would own about 40 percent of the company with AT&T shareholder getting the rest.

However, most analysts have dismissed an AOL/AT&T Broadband combination as one that's nearly impossible to push past regulators.

Disney — which entered the picture earlier this year, after president Bob Iger said he would be interested in getting in on the deal — is now rumored to want to be an investor in the company. According to published reports, Disney has proposed investing as much as $4 billion in AT&T Broadband to help with its eventual spin-off. In return for an equity interest of less than a 5 percent in the company, which would exempt Disney from cable/broadcast cross-ownership rules — Disney would likely get favorable carriage agreements for its cable networks.

That deal would help AT&T chairman C. Michael Armstrong move forward with his plan to separate AT&T Broadband as a tracking stock, then spin it off as an asset-based company a year later.

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