Bell’s TCI Bid Ignites Stock Buying Frenzy

The reverberations from Bell Atlantic Corp.’s momentous bid to acquire cable giant Tele-Communications Inc. cascaded across the business world Wednesday, touching off a buying frenzy on Wall Street and setting technology and entertainment industry executives scrambling across a dramatically altered landscape.

Bell Atlantic, the regional telephone company that serves six Eastern states and the District of Columbia, announced that it planned to acquire TCI and its programming affiliate, Liberty Media, in a stock swap valued at anywhere from $21.4 billion to $30 billion. The combination would create a communications powerhouse well-positioned to lead the way in building the much-heralded “information superhighway.”

But federal, state and local regulators were preparing to take a hard look at the transaction, the second-largest merger in U.S. history behind only the 1989 combination of RJR and Nabisco Brands. The deal also could be affected by pending court decisions and even congressional moves to alter the nation’s complex communications laws.

Consumer groups on Wednesday geared up to oppose the merger, arguing that a decade after the court-ordered breakup of the Bell System it would create a dangerous new telecommunications monopoly at high cost to local phone customers.

Still, many in the technology world hailed the agreement as a breakthrough that lays the groundwork for a new era of movies on demand, video telephone calls, home-shopping services, electronic newspapers and other information-age wonders.

At a New York press conference, Bell Atlantic Chairman Raymond W. Smith called the proposed merger “the perfect information-age marriage” and “a model for communications companies in the next century.”

The new company--which would be called Bell Atlantic and headed by Smith, not TCI’s visionary but controversial chief executive John C. Malone--would have 22 million cable and telephone customers, major cellular telephone holdings in the United States and overseas and stakes in two-dozen cable television programming services.

Observers expressed surprise that Malone, who built a rural cable TV service into a multifaceted behemoth with major stakes in programming, would readily take a back seat to Smith, a veteran of the old Bell System who has transformed Bell Atlantic into the most aggressive of the regional phone companies.

Malone will receive about $1.1 billion in Bell Atlantic stock in exchange for his TCI and Liberty holdings and serve as vice chairman of the new firm’s board. He said simply that he would be “involved in advising Ray and the board, helping out where I can,” adding that he “liked to invent things--and this is a wonderfully fertile platform to develop new services and assets.”

The deal got started last spring when Bell Atlantic, eager to enter programming and other video services, approached TCI to see if they might somehow work together. In May, Malone and TCI executives visited with Smith and his team at Bell Atlantic offices in Arlington, Va.

During a July meeting in the basement of Smith’s home, Bell Atlantic executives decided to pursue a full-scale merger, according to Stuart Johnson, a group vice president. Soon after, they called TCI and substantive negotiations began at the end of August, with the top executives at times meeting on board Malone’s yacht off the coast of Maine.

The new company over the next decade plans to upgrade its telephone networks to carry television programming and equip its cable networks to handle telephone traffic, thus creating a multifunctional “full-service network.”

Wednesday’s deal was only the latest--though by far the most dramatic--in a series of alliances and mergers spurred by what often is referred to as the multimedia revolution. Just this year, regional phone operator U.S. West agreed to invest $2.5 billion in Time Warner and AT&T; acquired cellular telephone giant McCaw Communications for $12.6 billion.

Enmeshed in the deal is the bidding war that broke out last month over Paramount Communications Inc., one of the movie-making and book-publishing empires that will provide the “software” for telecommunications highways like that being constructed by Bell Atlantic.

TCI is backing Barry Diller and QVC Network Inc. in its $9.6-billion bid for Paramount. Malone on Wednesday described TCI’s role as merely an investor and said it would be unaffected by the Bell Atlantic merger. (TCI is reacquiring Liberty, which in turn owns 22% of QVC.)

But Viacom, which has bid $7.86 billion, publicly bashed Malone and TCI. Viacom, which has filed an antitrust suit against TCI, said the merger agreement was another example of Malone’s “market dominance and monopolistic intentions.”

The Bell Atlantic linkup is especially significant because it involves major players from two camps--the local telephone industry and the cable industry--that long have been sworn enemies.

The deal only increases the pressure on other telephone and media companies to find new partners, and the frantic buying of cable and entertainment company stock on Wednesday indicates that Wall Street believes more such deals are to come.

Investors not only embraced the Bell Atlantic deal--shares in the phone company soared $5.875 to a record $65.875 on the New York Stock Exchange while TCI shares leaped $3 to $31.125 on the Nasdaq--but they also sent other cable and entertainment stocks skyrocketing.

The transaction is complex.

In the likely event that key regulatory approvals are not obtained immediately, the deal will proceed in two stages. TCI and Liberty would spin off all programming assets (which include all or part of such services as Black Entertainment Television and Prime Sports), along with the TCI cable systems that are within the Bell Atlantic calling area, into a new company owned by TCI and Liberty shareholders. Bell Atlantic would acquire all the rest of TCI’s assets for $11.8 billion in stock and assume $9.6 billion in TCI debt.

At the same time, Bell Atlantic would invest $1 billion in the spinoff company and agree to acquire it later. At that time, it would keep the programming assets but sell the cable systems within its region. This second part of the deal would lift the total value of the transaction to about $30 billion, analysts estimate.

Many in the computer industry welcomed the deal as a way to accelerate development of the communications and entertainment network of the future.

“The old regime of cable and telephone companies being utterly separate interests doesn’t make sense in the new world,” said Nathan Myhrvold, head of advanced technology at Microsoft Corp. He called the deal “a step toward competition,” looking ahead to the day when “one wire in the home will provide everything, but you’ll have a choice of who supplies the wire.”

But Jonathan Seybold, a Malibu-based consultant who specializes in new media, said the deal “makes us instantly worry if this company might not be too powerful, the new AT&T.;”

Regulators and consumer groups have similar concerns.

Rep. Edward J. Markey (D-Mass.), chairman of the powerful House subcommittee on telecommunications, urged the Federal Communications Commission to undertake a “formal inquiry” into the alliances among cable, telephone and computer companies. Markey also announced that his subcommittee would hold hearings on the issue of media concentration and its impact on consumers.

“This is a bad deal for consumers,” fumed Bradley Stillman, legislative counsel for the Consumer Federation of America. “If this merger is allowed to go through, a logical competitor to TCI will be gone. Who’s going to buy the Washington, D.C., cable franchise when you are going to have to compete against the incumbent telephone monopoly and the cable TV company that controls the most cable programming?”

Times staff writer Jube Shiver Jr. in Washington contributed to this story.

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