Cox Communications Exploring AT&T; Deal

Cox Communications Corp., the nation’s fifth-largest cable operator, is exploring a merger with AT&T; Broadband, according to sources close to the company.

The discussions are part of a monthlong search by AT&T; Corp. Chairman C. Michael Armstrong for an alternative bidder to Comcast Corp., whose unsolicited $40-billion offer for the company’s cable group was rejected by AT&T;’s board in mid-July as inadequate.

Neither AT&T; nor Cox could be reached Monday for comment.

Armstrong has since held discussions with AOL Time Warner Inc., Walt Disney Co., and Microsoft Corp. about a possible investment or merger with AT&T; Broadband, the nation’s largest cable operator.

But sources close to the situation say Armstrong is having little success. Sources close to Cox say the cable company signed a confidentiality agreement with AT&T;, but has little inclination to make a move. Most industry and Wall Street sources have dismissed Cox as a potential suitor because it lacks the scale to pull off such a deal. Cox serves about 6 million customers, compared with AT&T;’s 14 million.

However, one source said Vivendi Universal had approached Cox about backing the cable company in the deal. Vivendi lacks any significant distribution in the United States for its content other than its 45% ownership in USA Networks Inc., the parent company of USA Network, Sci Fi Channel and Home Shopping Network.

Analysts said the companies are using the negotiations to extract concessions from AT&T; and Comcast for their support. “Disney would love preferential carriage deals for its cable channels,” said Christopher Dixon, an analyst at UBS Warburg.

Comcast sources say Disney has approached them angling for favorable terms for the carriage of its cable channels. Disney also is looking to secure new long-term contracts for its cable channels with AT&T; that expire at the end of 2002 as part of its negotiation with the telecommunications giant.

A cable source said Cox is using the opportunity to get a look at confidential information such as AT&T; cable contracts.