In one of the largest corporate mergers in history, Bell Atlantic has agreed to buy both Tele-Communications Inc., the nation's largest cable operator, and its cable programming company, Liberty Media Corp., in a stock deal valued at more than $23 billion, three executives close to the negotiations said last night.
The corporate marriage would be one of the first to take advantage of a regulatory environment that has become more receptive to telephone companies branching out into new businesses as a way to bring about a nationwide "superhighway" data communications network.
The merged company would be well positioned to explore and develop new technology for delivering an arsenal of new programming into American homes.
The deal would give the newly formed company access to 42 percent of U.S. homes, a figure that reflects the extraordinary number of homes reached by Tele-Communications and by Bell Atlantic, which owns Chesapeake and Potomac Telephone Co. of Maryland. It would also create a colossal company with $60 billion in assets and $7.5 billion a year in cash flow.
The sheer size and scope of the deal stunned the industry last night. While telephone companies have begun buying smaller cable companies, it had hardly seemed possible that a telephone company would try to swallow a major cable operator whole, and certainly not a behemoth of Tele-Communications' size.
As the market leader, it controls 25 percent of the U.S. cable television market, reaching one out of four homes with cable.
Nor had there been any clue -- despite enormous scrutiny in the past few weeks because of Tele-Communications' role in the takeover battle for Paramount Communications -- that Tele-Communications' president, John C. Malone, intended to sell his company.
Just last week, he seemed far more intent to play the buyer, arranging to buy back the 90 percent of Liberty Media that Tele-Communications did not already own.
But Mr. Malone has done a number of deals with telephone companies, including U S West, and has apparently been in talks to sell at least an interest in Tele-Communications to one of the phone companies.
Far from killing a bid for Paramount, which Bell Atlantic was considering joining, experts said yesterday that the latest purchase might actually strengthen that bid, which also involves QVC Network Inc.
For Bell Atlantic's part, it has been among the most aggressive of the phone companies at diversifying into new areas. Clearly, it is gambling that it will not have to deal with the current American law that bars telephone companies from owning cable systems in their own territory.
But Bell Atlantic has already won a U.S. District Court ruling in Virginia declaring the law that prohibits such cross-ownership unconstitutional. The case is being appealed.
Even so, time is on Bell Atlantic's side. The political sentiment in Washington and the Clinton administration is shifting rapidly in response to changes in the market place that argue strongly for unleashing American companies to join forces and become more competitive worldwide.
There is also growing support to eliminate the legal barriers barriers for consumers' sake because the telephone companies are seen as a good way to force competition into the cable market.
Several people close to the talks said last night that Bell Atlantic would pay about $35 a share of its own stock for each share in Tele-Communications. Bell Atlantic will also assume the roughly $10 billion in debt that Tele-Communications already carries, they added.
As to what this does to the pending purchase of Paramount Communications by QVC, which is partly owned by Liberty, several experts said that it could only strengthen QVC's hand since Liberty would be that much stronger with Bell Atlantic's financial power behind it.
And one expert said he believed that Bell Atlantic could buy another movie company if it chose to do so.
Bell Atlantic refused to comment yesterday. It released a statement that said it would make a major announcement in New York at 7:30 a.m. today, followed by a news conference at 10 a.m.
Bell Atlantic is investing heavily in fiber optic and advanced digital switching technology, which will allow it to deliver a network that has the theoretical capability to let people order whatever video entertainment they might want.
The company is already installing that technology throughout New Jersey and in a showcase system in Virginia. What Tele-Communications brings is a rich source of programming through Liberty and its cable networks, which already deliver hundreds of programming channels.
The telephone system has the ability to provide two-way communications, but its wires running into individual homes do not have the capacity for more than a single channel of video at one time.
A cable operator such as Tele-Communications offers networks that bring lots of channels into the home but offers little ability to send information back to the supplier, which is the base of any two-way programming service such as movies-on-demand.