Bidders for AT&T Broadband — who were expected to submit revised bids for the cable unit this past Sunday — must swallow more debt to close the deal, according to press reports and sources familiar with the matter.
Last week, after its Dec. 8 scheduled meeting, AT&T Corp.'s board of directors said it would continue negotiations with interested parties. Most people familiar with the matter took that as a cue for the bidders — Comcast Corp., Cox Communications Inc. and AOL Time Warner Inc. — to sweeten their offers.
Sources familiar with the matter said AT&T asked interested parties to resubmit their bids by Sunday, Dec. 16. The board's next scheduled meeting is Dec. 19.
The Wall Street Journal
reported last week that AT&T wants bidders to assume more corporate debt.
reported last Thursday that AT&T has assigned about $26 billion of its $36.5 billion debt to Broadband. That would include about $800 million in liabilities stemming from AT&T's 1999 purchase of Tele-Communications Inc.
Broadband also lowered its 2002 cash-flow estimate by $450 million, to $2.85 billion from $3.3 billion, according to the Journal.
Sources familiar with AT&T disputed those numbers, claiming the difference was not that dramatic.
Sources said AT&T needs to offload more debt onto Broadband, because lower cash flow means higher leverage, and because AT&T's business-services unit, which provides telephony equipment and services to large customers, has not performed as well as planned.
AT&T has pared its debt — once at $65 billion — down to $36.5 billion in the third quarter. In May, the company said it would assign about $28 billion in debt to Broadband, but that number was expected to fall as AT&T sold off nonstrategic assets.
AT&T is in a tough spot because revenue at its long-distance unit continues to decline and its business services operation isn't performing as well as expected, making it harder to service debt.
At $26 billion, Broadband would carry a debt load of about 9.1 times estimated 2002 cash flow, a relatively high ratio for a cable operator. Comcast, for example, has a leverage ratio of about 4 times.
Comcast's unsolicited bid for Broadband in July called for the assumption of $13.5 billion in AT&T debt. AT&T rejected that offer. But Comcast's low leverage could mean it is in better shape to take on more debt than the other bidders are.
"Comcast's position has improved," one investment banker familiar with the situation said last week. "The Cox and Comcast bids are close; the only difference is in terms of debt and structure. Comcast will be able to take on more debt."
Last month, sources said Comcast's revised bid gave less control of the combined entity to Comcast's two largest shareholders, chairman Ralph Roberts and president Brian Roberts. The July bid gave the Roberts family 49 percent voting control with just 2 percent of stock ownership. The revised bid trimmed that voting power to 35 percent.