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Malone leaves AT&T board; shares take flight

John Malone, the telecommunications giant's largest individual shareholder, abruptly resigns from the company's board of directors.

John Malone The soap opera that is AT&T took another surprising turn Tuesday when John Malone, the telecommunications giant's largest individual shareholder, abruptly resigned from the company's board of directors.

Malone, who originally planned to leave AT&T's board in August when his Liberty Media Group business is formally separated from AT&T, was unimpressed by Comcast's unsolicited $40.5 billion offer for AT&T Broadband.

His departure immediately sparked a rally in AT&T shares, sending the stock up $1.94, or 10 percent, to $20.64 by market close.

Industry and financial analysts said Malone's resignation could mean that he and other well-heeled investors will soon make an offer of their own, raising the price tag for AT&T Broadband by offering at least one other suitor to compete with Comcast for the rights to the nation's largest cable network.

"This is a clear sign that Malone is not pleased with the (Comcast) offer, and he's doing something about it," said Drake Johnstone, an analyst at Davenport. "All he has to do is make some noise to drive up the bid. We're already seeing some of that impact in AT&T's stock today."

According to a copy of his resignation letter acquired by Reuters, Malone said he was leaving the board because he was excluded from participating in the Comcast talks, which have been taking place for more than a month, and because the terms of the offer were "insufficient."

"There's never been any love lost between Malone and (AT&T CEO C. Michael) Armstong," one analyst said. "Malone's consistently embarrassed Armstrong in the press even though it hurts his own holdings. That's how deep this runs."

AT&T executives said Malone was excluded from the Comcast discussions because of the potential conflict of interest between his Liberty Media business and a combined AT&T-Comcast. Malone is chairman at Liberty Media, a cable programming company in which AT&T holds an ownership stake.

Comcast, the nation's third-largest cable TV company, offered to buy AT&T Broadband as well as AT&T's interests in the Time Warner Entertainment joint venture, Cablevision and Rainbow Media, by assuming roughly $20 billion in debt.

"Comcast did a good job on the math and came in with a pretty good first offer," said Pat Comack, an analyst at Guzman. "Of course the first bid is never as good as the last bid. I suspect AT&T is reviewing the bid right now and will decline and wait awhile. They're in no hurry to sell. They'll just continue on with their plans to issue a tracking stock for (AT&T Broadband) later this year."

AT&T gobbled up Liberty Media, which currently trades as a tracking stock of AT&T, through its 1999 acquisition of cable TV company Tele-Communications Inc.

"There's a relative likelihood that Malone will assemble a team to bid against Comcast if for no other reason than to jack up the price Comcast will have to pay to get the broadband unit," said Jeff Halpern, an analyst at Bernstein. "If the bidding keeps going up, AT&T might be able to sell off the unit for a profit."

Among the companies rumored to have an interest in joining the AT&T Broadband bidding wars are Microsoft, Verizon Communications, and perhaps a group bid by Cox Communications, Adelphia Communications and Charter Communications that, if successful, would result in the trio dividing the AT&T Broadband assets to avoid any possible regulatory issues.

"Malone's departure has caused me to rescind (Monday's) downgrade from a hold rating to underperform," Johnstone said. "I figured the AT&T board would be pigheaded and reject the offer, resulting in a pullback in the stock. Now, it's possible that this could turn into a bidding war."

A combination of Comcast and AT&T Broadband would be the nation's No. 1 cable operator by far. Already the nation's largest cable company, AT&T Broadband has 13.5 million subscribers. Together, the companies would have 22 million customers in eight of the 10 largest U.S. markets.

"To be honest, it's 50-50 right now," Comack said. "I really don't know what's going to happen."

Comcast shares were off 54 cents to $38.76 in late trading.