Comcast in Deal to Expand in Philadelphia

Comcast Corp. agreed to buy cable-television company Lenfest Communications Inc. from AT&T; Corp. and the Lenfest family for about $5.55 billion, adding 1.25 million subscribers in the Philadelphia area.

Comcast, the third-largest U.S. cable-TV provider, would exchange 116 million Class A special common shares and assume $1.5 billion in debt. The agreement overrides AT&T;’s plan to buy the 50% of Lenfest it didn’t already own.

AT&T; agreed in May to sell cable systems to Comcast and gave it options to buy others. In exchange, Comcast dropped out of the bidding for cable-TV operator MediaOne Group Inc. Shedding Lenfest is expected to help AT&T;, soon to be the largest U.S. cable-TV company, win approval of its purchase of MediaOne.

“This transaction may reflect AT&T;’s desire to come closer to current cable-TV ownership regulations,” said Kevin Roe, an analyst at ABN Amro Inc., who has an “outperform” rating on AT&T.;

The purchase is part of Comcast’s plan to cut costs while offering new services as more customers are concentrated in the region. With Lenfest, Comcast will have more than 4 million customers in the mid-Atlantic region.

Comcast Class A shares rose $2.69 to close at $44 on Nasdaq. Its Class A special shares rose $2.94 to $47.88. AT&T; rose $1.63 to $47.63 on the New York Stock Exchange.

The acquisition of Wilmington, Del.-based Lenfest is expected to close in the first quarter.

Cable-TV companies have been spending to market and develop new digital services such as expanded channel offerings, high-speed Internet access and telephone service. Large regional groupings or clusters of systems allow the companies to deliver these services more efficiently, analysts say.

After pending transactions are completed, Comcast said it will have 8.2 million customers, almost double the amount the year earlier.

At about $5,368 a subscriber, the price for Lenfest is “relatively high” compared with other recent transactions, said Aryeh Bourkoff, an analyst at CIBC World Markets.

“The price confirms their belief in the clustering strategy, and their confidence in their new services,” Bourkoff said.

Cable-TV is part of AT&T; Chief Executive C. Michael Armstrong’s move to provide high-speed Internet access, phone and cable services to homes.

AT&T; had agreed to sell cable-TV systems for as much as $9.2 billion to Comcast. In exchange for dropping out of MediaOne bidding, Comcast agreed to pay as much as $3.5 billion to get 750,000 AT&T; cable customers and received a three-year option to acquire another 1.25 million customers for $5.7 billion.

Comcast also agreed to sell AT&T; phone services to its own cable customers.

AT&T; needs the cable networks to temper an expected decline in long-distance market share after local carriers, such as Bell Atlantic Corp., get into long-distance.

The Federal Communications Commission said last month that it will keep cable-TV ownership rules that bar a company from owning systems serving more than 30% of U.S. households. Yet it expanded the defined market by adding satellite-TV subscribers, essentially raising the cap to 36.7% of cable homes.

AT&T; will exceed the 30% national limit after the MediaOne purchase is completed. At that time, analysts said AT&T; could be forced to shed subscribers or change the structure of its cable investments.