Malone/Hindery AT&T Play Unlikely

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Sources close to the situation denied last Thursday night's published report that Liberty Media Group chairman John Malone and former AT&T Broadband CEO Leo J. Hindery Jr. were looking to make a run at AT&T Corp.

According to a report from Cable World
posted on the Internet site Inside.com
— which is owned by Cable World
parent Brill Media Holdings Inc. — both Hindery and Malone were looking for partners to help them take over the telephone giant for about $78 billion. The report also cited Microsoft Corp. and regional Bell operating company Verizon Inc. as likely allies.

Hindery declined to comment on the rumors, but sources close to him said there were "no substance" to the reports. AT&T Broadband refused to comment.

"This is complete speculation, and we can't comment on speculation," said Liberty Media spokes-woman Julie Gleichmann.

Verizon spokesman David Frail also declined comment, citing the company's policy of not commenting on speculation.

At the National Show in Chicago earlier this month, Microsoft TV division senior vice president Jon DeVaan tried to put any cable takeover rumors by his company to rest by denying the software giant's interest in owning cable operations.

"We're a software company," DeVaan said at the National Show.

Sources close to both Hindery and Malone didn't put much credence in the report.

"I think it's kind of ridiculous," said one investment banker, who asked not to be named. "He [Malone] has got a lot on his plate already without AT&T."

Janco Partners Inc. analyst Matt Harrigan, who follows Liberty, said that even though anything is possible, his feeling is that Liberty is concentrating on its European assets at the moment, and not on making any large domestic acquisitions.

Last week, Liberty agreed to spend $4.7 billion for Deutsche Telekom AG's German cable operations, with about 3 million subscribers.

"I think that Liberty is very occupied with Europe right now," Harrigan said.

Other sources voiced surprise that Hindery and Malone would launch a takeover of the entire company, including its consumer long-distance and business services units, which have been in decline. AT&T's wireless unit is scheduled to be spun off next month, which would eliminate it from any deal.

"It's like holding water in your hand," the investment banker said of the other AT&T assets. "They're not going to be there in a little while."

And AT&T Broadband has had problems of its own.

Although it's the largest cable operator in the country, with 15.3 million subscribers, AT&T Broadband's 16-percent cash-flow margins are the lowest when compared with the 38 percent to 47 percent cash-flow margins of its peers in the industry.

AT&T Broadband CEO Dan Somers has said the company is working to turn its cash-flow performance around.

Last October, AT&T disclosed plans to split into four separate parts — Broadband, consumer, business and wireless. The company said last week that it will issue a tracking stock for its Broadband unit on August 10. About a year later, AT&T plans to make the MSO unit a separate, asset-based company.

Rumors of AT&T Broadband's ultimate fate have been swirling ever since AT&T announced its breakup plans. Comcast Corp. was also said to be assembling a group to take over the unit, a rumor company president Brian Roberts flatly denied.

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