Bell Atlantic, TCI Cable Said to Plan Merger

Cable giant Tele-Communications Inc. and the Bell Atlantic Corp. phone company today will announce plans to merge, sources said Tuesday, creating one of America’s largest corporations and a dominant new player in the fast-changing world of information technology and entertainment.

With a market value of $44 billion, the new company would rank near the very top of U.S. public corporations, ahead of General Motors and IBM. No other U.S. telephone company except AT&T; would be larger. Combined, TCI and Bell Atlantic would be able to provide services--via telephone, cable and other means--to an estimated 40% of American homes.

“This is the wildest deal ever,” said one veteran banker, recalling the unpredictable, high-stakes mergers of the 1980s, which were capped by the Time Inc.-Warner Communications and RJR-Nabisco deals. “This makes RJR look like a no-brainer,” he declared.

Philadelphia-based Bell Atlantic has 18.4 million phone lines in New Jersey, Pennsylvania, Maryland, Virginia, Delaware, West Virginia and Washington, D.C., while Denver-based TCI currently serves more than 10 million cable TV homes. A pending acquisition of Liberty Media Corp. would boost TCI’s subscriber count above 13 million, or 23% of the nation’s cable TV households.

Details of the merger agreement, which is expected to involve a stock swap, will be announced at press conferences in New York and Washington, D.C., today. Sources said Tuesday that Bell Atlantic Chairman Raymond W. Smith would be named chairman of the company, with TCI Chief Executive John C. Malone becoming a director and vice chairman.

If completed, the deal would be a career capper for the aggressive Malone. TCI has already agreed to reacquire his 50%-owned Liberty Media Corp. in a stock swap valued at about $3.5 billion. Malone--whose Liberty stake was valued at $700 million--would wind up a significant shareholder of a new, blue-chip stock.

TCI has made a number of lightning moves in recent weeks, most notably backing a hostile bid by QVC Network Inc. to acquire Paramount Communications Inc. for $9.5 billion. (TCI’s Liberty affiliate is a major shareholder of QVC and has pledged an additional $500 million for the Paramount bid.) On Wall Street, bankers were uncertain Tuesday just what impact the Bell Atlantic-TCI merger would have on the QVC quest for Paramount.

Paramount, despite a merger agreement with Viacom Inc., agreed Monday to hold “informational” discussions with QVC because QVC Chairman Barry Diller came in with a higher offer.

While financial details of the Bell Atlantic and TCI alliance have not been disclosed, it is expected to eclipse other recent media and telecommunications deals, including AT&T;’s plan to acquire McCaw Cellular for $12.6 billion in stock, Baby Bell US West’s investment of $2.5 billion in Time Warner Inc. and the ongoing battle over Paramount.

Given its sheer size, the proposed merger is almost certain to raise regulatory issues. However, the way may have been cleared for such deals earlier this summer when a federal court in Virginia overturned a government prohibition against telephone companies providing TV programming over their phone lines.

The lawsuit challenging the ban, perhaps not coincidentally, was brought by Bell Atlantic, which has been one of the most enterprising of the so-called Baby Bells to get into cable.

Bell Atlantic has steadily moved to evolve from a phone utility into a company in tune with emerging telecommunications technologies. It is already at work on advanced technology to compress and pump high-quality video over traditional copper phone lines, and it has taken the unorthodox step of challenging some local cable TV monopolies.

Over the last year, Bell Atlantic also formed a special group within its Alexandria, Va.-based Network Services division devoted entirely to developing opportunities in cable and emerging multimedia technologies. The telephone company has quietly hired 150 staffers in the new unit, many of them veteran TV industry executives.

Bell Atlantic reported 1992 revenues of $12.6 billion and net income of nearly $1.4 billion. Its long-term debt is under $8 billion.

The Baby Bells have been exploring entry into the cable TV business, while cable companies have been venturing into partnerships with regional phone companies. And Bell Atlantic and TCI have been especially active.

TCI is at the forefront of trying to develop Personal Communications Network technology, which would allow a PCN customer to have a “lifetime” portable phone number they could carry with them anywhere. A PCN signal would be partly carried over cable TV lines.

Earlier this year TCI announced it would spend $2 billion over the next four years to install 7,000 miles of high-capacity fiber optic cable that can serve as both a television and telephone pipeline--the “electronic superhighway.” The new infrastructure is supposed to usher in the age of 500-channel interactive TV, when a mass of movies and TV programs will be available on demand.

TCI started as a small-time operator of rural cable TV systems and in many cases is still dogged by an image of poor service. But under Malone’s leadership, TCI became one of the most powerful companies in the communications and entertainment business, through mergers and strategic investments in such small, struggling cable TV networks as Discovery and Black Entertainment Television.

Even after TCI’s spinoff of most of its cable TV programming interests to Liberty Media in 1991, the company prospered. In 1992, TCI reported revenues of $3.5 billion last year and operating income of $956 million.

TCI A shares traded as high as $29.125 on Tuesday before closing at $28.375, off 25 cents.

On Monday, the stock shot up $1.125.

Bell Atlantic shares gained 62.5 cents Tuesday to close at $60 on the New York Stock Exchange, after tumbling $2 the day before. On Monday, Bell Atlantic announced that it would pay as much as $1 billion for up to 42% of Grupo Iusacell, a major Mexican telephone company.