AOL Presses Bid for AT&T;’s Cable TV Operation

AOL Time Warner Inc. is stepping up efforts to acquire a major stake in AT&T; Corp.’s cable system, offering a deal that would give the media giant control of AT&T; Broadband’s operations, sources familiar with the matter said Sunday.

AOL has been in talks with AT&T; since July, when AT&T; rejected an unsolicited $41-billion stock swap bid by Comcast Corp. for AT&T; Broadband, the nation’s largest cable provider. AT&T; then began seeking other suitors, including Walt Disney Co. and Cox Communications Corp., and possibly Microsoft Corp. and Charter Communications Inc., for its cable business.

AOL made the proposal late last week, sources said.

A combined AOL and AT&T; cable operation would command about 27 million subscribers, nearly three times the number of subscribers of Philadelphia-based Comcast, the nation’s third-largest cable company. A merged AOL-ATT cable system could spur other cable combinations and would face close regulatory scrutiny.

AT&T; spokeswoman Eileen Connolly on Sunday would not confirm that AOL, or any other company, had submitted an offer. An AOL spokesman declined to comment.

Sources said talks remain fluid as New York-based AT&T; contemplates other potential bids. “Nothing’s imminent,” said a source familiar with the situation.

Under the terms being discussed, AOL Time Warner would acquire up to 49% of AT&T; Broadband, allowing AT&T; to maintain majority ownership.

That structure would also ensure a tax-free transaction for AT&T; shareholders, an important negotiating point to win approval of AT&T; directors.

AT&T; rejected Comcast’s offer partly out of concern that AT&T; shareholders wouldn’t have enough control.

The combined cable operations would be spun off into a separate, publicly traded unit, but AOL Time Warner would run it, the sources said.

AT&T; officials say they anticipate additional offers before the company’s board meeting Sept. 20, when the merger proposals will be discussed.

Sources cautioned that even as talks heat up between AOL Time Warner and AT&T; that it is in the interests of the telecommunications giant and those associated with it to drum up as much interest in the cable unit as possible to get the best price for it.

Last week, John Malone, chairman of Liberty Media Corp., a major shareholder in AOL Time Warner with close ties to AT&T;, hinted at the cable bid at a Liberty investor conference.

Analysts have said that an AT&T-AOL; cable merger--both of which are operating under government-imposed restrictions from previous acquisitions--would face a storm of opposition from consumer groups and other giant corporations, such as Disney and Microsoft.

One analyst suggested in July that AOL, which spent much of last year battling for government approval for its Time Warner acquisition, would not be so successful trying to buy AT&T; Broadband. He compared the effort to “Napoleon going to Moscow.”