AT&T; Cancels TCI Stock Plan at Last Minute
In a last-minute turnabout that in part suggests internal turmoil, AT&T; Corp. scrapped plans to create a new stock tracking its highest-growth and riskiest businesses as part of its $42-billion acquisition of cable giant Tele-Communications Inc.
The nation’s largest long-distance company abandoned both the plan it outlined for Wall Street in June, when it first announced the acquisition, and another proposal floated since, both of which involved use of a so-called tracking stock, an arcane financial instrument commonly used by TCI Chairman John Malone to value discrete assets with different growth rates and risks than those of the parent company.
Company sources said the plan for a separate stock was scrapped last week because of unresolved internal disputes over how to value certain assets and how to structure relationships between the parent and the tracking assets. The source said that although AT&T;’s stock languished after the TCI deal was first disclosed, a series of transactions announced since then had sent the phone company’s shares soaring, reducing the need to protect either the risk-averse long-distance shareholders or the growth-oriented TCI stockholders from the other using the tracking mechanism.
The reversal, nevertheless, caught many on Wall Street by surprise. “This just shows they still haven’t gotten it together on this deal, even though they have been battling to figure it out since June,” said one institutional investor.
AT&T; received clearance for the acquisition from securities regulators on Wednesday night and unveiled the final structure of the deal to more than 1,000 analysts on Friday. Under the new structure, TCI assets will be combined into the parent company under TCI President Leo Hindery. The phone giant said this will make it easier to bundle services such as phone, high-speed Internet access and cable television to consumers.
AT&T; mailed proxy statements to shareholders on Friday in preparation for a Feb. 17 shareholder vote. The deal could close within days of the vote.
But many analysts said the vagaries of the initial structure announced in June and the flip-flopping since highlight lingering internal conflict over the structure, the clash of the two cultures and the difficulty AT&T; Chief Executive C. Michael Armstrong faces in turning around what some analysts consider one of the most bureaucratic companies in America.
Nevertheless, AT&T;’s stock soared on Friday, jumping $2.81 a share on the New York Stock Exchange to close at a high of $85.06, while TCI shares ended up $1.19 at a new high of $62.25 a share.
Many analysts attributed the increase to AT&T;’s announcement Friday of a $4-billion stock buyback and a 3-for-2 stock split, the first for the phone giant in 35 years. Other analysts said Wall Street was rewarding Armstrong for taking the phone giant into higher-growth new businesses through a series of acquisitions during his 14-month tenure that have dramatically reduced AT&T;’s exposure to the low-margin residential long-distance business. AT&T; plans to use TCI’s cable wires to enter the local phone business in what could be the biggest threat yet to the regional Bell operators.
The company announced plans Friday to spend an additional $2 billion this year to upgrade TCI’s cable systems to deliver packages of TV, local phone and Internet services, accelerating by a year TCI’s own timetable. AT&T; said it will offer those services in parts of 10 markets, including San Francisco, later this year to gauge demand.
The company is negotiating joint ventures with other cable firms to use their wires for local phone service and announced five such partnerships Friday, including one with Los Angeles-based Falcon Cable Systems Co.
Falcon chief Marc Nathanson said consumers in communities such as Malibu, Calabasas and San Luis Obispo will have an alternative to their local phone carrier early in the next century.
While these phone partnerships have been hailed on Wall Street, many cable analysts were disappointed with the TCI-AT&T; structure unveiled Friday morning. “This is one of the stupidest transactions in finance history,” said Christopher Dixon, a media analyst at PaineWebber Inc., who predicted that TCI shareholders would exit the deal in favor of pure cable stocks such as Comcast Corp., Cablevision Systems Corp. and Cox Communications.
Under the structure announced in June, AT&T; planned to create a so-called tracking stock for consumer services, including TCI’s cable assets and the phone giant’s residential long-distance and wireless businesses. Corporate telecommunications and international businesses would remain in the parent company.
