The $72 billion deal was made official Thursday, ending a bidding process for AT&T's cable business that had stretched over five months. In the end Comcast, which had made an unsolicited $44.5 billion offer for the business in July, beat out bidders including Cox Communications and AOL Time Warner.
AT&T CEO C. Michael Armstrong sees the broadband unit and Comcast accomplishing more together than they could alone. "There is no question in my mind that this bundle works in the market and works in the bottom line," Armstrong said in a conference call Thursday.
Armstrong will be chairman of the new cable behemoth, and Comcast CEO Brian Roberts will be the new company's CEO.
Armstrong later said he will delay his planned retirement by two years and remain chairman of the new company, AT&T Comcast, until the shareholder meeting in 2005. Terms of that employment contract have not been determined. Executives on the conference call detailed the structure of the new company, which will be dubbed AT&T Comcast and have headquarters in Comcast's Philadelphia headquarters.
The new company will have annual revenue of $18 billion, with earnings before interest taxes, depreciation and amortization (EBITDA) of $4.6 billion, and EBITDA margins of 25.6 percent, according to Chuck Noski, AT&T's chief financial officer.
The combined company will have a debt load of $27 billion, with $25 billion being assumed from AT&T. That was seen as a key factor for AT&T, which has been struggling to unburden itself from a staggering debt load.
Noski said that after the deal is done, AT&T Communications Services will be carrying a debt load of around $18 billion and that the company is shooting for a "strong BBB" bond rating.
As part of the deal, Microsoft will convert $5 billion worth of AT&T preferred securities, which were basically AT&T debt, into shares of the new company.
Executives said the merger would end up saving the company up to $950 million over the next three years through programming, operational and advertising efficiencies. It should also add up to $1 billion in additional revenue over the next three to five years from new products, including providing telephony services to Comcast's current customer base.
Steve Burke, president of Comcast Cable, said that particular effort could amount to $600 million to $800 million annually within the next five years.
"If we overlay their expertise, their investment, their people and learning, and roll out telephony to our footprint, it could represent a very significant opportunity over the next five years," he said.
The powers that be
Comcast's Roberts acknowledged that his company had at first looked to get a larger share of control of the new company. The current structure calls for five board members each from AT&T and Comcast, along with two independent directors.
But the Roberts family, which controls about 87 percent of Comcast and has a 2 percent economic stake in it, will have a one-third voting interest in the new company. AT&T shareowners will own a 56 percent economic stake and about a 66 percent voting interest in the new company.
"From the Comcast perspective, we wanted to maintain as much from where we come from and maintain the culture and family presence that the business has enjoyed," Roberts said. "But when we got into a dialogue with AT&T, we agreed that it was appropriate for a company of this size and scope to have outside help from independent directors."
The deal is expected to close in 2002. Noski said this morning that there were "traditional and typical" provisions that would allow either company to back out of the deal if there are "material adverse conditions." The breakup fees would be about $1.5 billion for each company.
"We've just finished dating," Noski said. "Let's get into bed together."
Shares of AT&T closed up $1.05 to $17.85, or 6.5 percent, while Comcast slipped $2.28 to $35.79, or about 6 percent.