PHILADELPHIA -- Comcast Corp. agreed yesterday to buy MediaOne Group Inc. for $60 billion in stock and assumed debt, creating the second-largest U.S. cable television company in the industry's biggest acquisition yet.
Comcast-MediaOne will have 11 million customers and access to 18 percent of U.S. homes, making it the biggest rival to No. 1 Time Warner Inc.
Philadelphia-based Comcast has 300,000 subscribers in Harford, Howard and Baltimore counties, as well as 26,500 customers on the Eastern Shore and in Delaware.
It will pay stock worth $53 billion and assume $7 billion of MediaOne debt. This includes swapping 1.1 Comcast special Class A shares for each MediaOne share, valued at $80.16, 32 percent more than MediaOne's Friday close.
The MediaOne purchase follows AT&T; Corp.'s $59.4 billion purchase of Tele-Communications Inc. this month. Cable TV companies are combining with rivals and others to provide a bundle of offerings such as telephone services, digital channels, online shopping and high-speed Internet access. Internet data can be transmitted via cable up to 100 times faster than through phone lines. Cable operators are expanding and forming alliances to help pay the costs of setting up these services.
"Cable companies have decided bigger is better," said Alan Lyons, an analyst at ABN Amro. "The battle lines for local competition are being drawn as cable companies step in as alternative providers of phone services."
Comcast Class A shares fell $5.375, to $64.75. MediaOne shares rose $7.75, to $68.50.
The purchase will make Comcast the largest cable operator in Massachusetts and give it large service areas in Florida, Los Angeles, Atlanta, Detroit, Richmond, Va., and Sacramento, Calif. Comcast said more than half of the MediaOne properties are adjacent to their service areas.
"We've felt for sometime that a subscriber count in excess of 10 million would establish the company as a major player in the industry," said John Alchin, Comcast senior vice president and treasurer.
Comcast Chairman Ralph Roberts and President Brian Roberts will remain in their positions. Charles Lillis, MediaOne chairman and chief executive officer, will become Comcast vice chairman and join the company's board along with three other MediaOne representatives.
Together, the companies' 1998 sales exceeded $8 billion. They earned $2.4 billion before interest, taxes, depreciation and amortization.
MediaOne shareholders will own 64 percent of the combined company, which will have capitalization of $97 billion when stock, debt and preferred shares are included. Comcast's current owners, including the Robertses, will continue to control the company through its Class B voting stock.
Under terms of the transaction, MediaOne can't solicit other offers and must pay $1.5 billion to Comcast if it accepts a higher bid.
Comcast said it expects to complete the purchase this year, pending shareholder and regulatory approvals. The transaction will be scrutinized by the U.S. Federal Communications Commission.
The transaction should not raise many antitrust concerns, antitrust attorneys said, given that cable companies enjoy government-sanctioned monopolies in most regional areas.
Comcast also expects to continue negotiating a phone joint venture with AT&T;, which wants to offer local phone service using cable lines.
Comcast said it is paying 15 to 17 times next year's earnings before interest, taxes, depreciation and amortization for MediaOne when cost savings and additional revenue is considered. Analysts said cable companies are bringing increasing prices as more acquisitions take place.
"This is a high price," said Richard Read, a Credit Lyonnais Securities Inc. analyst. "But Comcast has a good track record in buying under-managed companies."
Comcast projects $450 million to $575 million annually in cost savings by consolidating headquarters and reducing the combined operation's 34,000-person work force by less than 5 percent. Also, Comcast expects $40 million to $60 million in additional advertising revenue in enlarging its service areas, Read said.
The company also is looking at a sale of MediaOne's wireless holdings in Europe, Asia and Russia.
MediaOne is the latest in a string of purchases for Comcast. It expects to close the purchase of a controlling interest in Jones Intercable Inc. by May. It also may buy Prime Communications LLC's cable systems in Washington and Chicago for $1.45 billion, making it the largest cable operator in the Baltimore-Washington area. In February, Comcast agreed to buy Greater Philadelphia Cablevision's 79,000-subscriber system for $254 million in stock.
Pub Date: 3/23/99