AOL Time Warner Inc., AT&T; Corp. and Comcast Corp., three of the world's biggest media and communications companies, plan to announce a $9 billion deal today to unravel a complicated venture that has bedeviled them for years.
The deal, capping more than two years of tense negotiations, allows all sides to declare victory - although it may be more to the liking of AT&T; and Comcast, which has 800,000 cable customers in Maryland.
According to people briefed on the details, the agreement gives back to AOL Time Warner complete control of Time Warner Entertainment, which includes some of its key media properties, including the HBO pay-television operation and the Warner Brothers film studio.
The deal also could give the company's flagging America Online Internet division a big boost by making it easier for millions of consumers to connect to the service through high-speed cable modems.
And yet, in some ways, AT&T; and Comcast got the better part of the deal, as they capitalized on the intense pressure on AOL Time Warner's chief executive, Richard D. Parsons, to revive the America Online unit and simplify his company's structure.
AOL Time Warner agreed to give AT&T; about $2 billion in cash, about $1.5 billion in AOL Time Warner shares and about 21 percent of a newly formed operation, Time Warner Cable, which will include all of AOL Time Warner's roughly 12.9 million cable customers nationwide.
The cash, the AOL stock and the Time Warner Cable shares will all go to Comcast if, as expected, Comcast completes its acquisition of AT&T;'s cable operation before the end of the year.
Comcast, which would become by far the nation's biggest cable company, intends to sell at least some of its 21 percent stake in Time Warner Cable to the public next year in an initial stock offering worth perhaps $5.5 billion.
That would give AOL Time Warner control of a publicly traded company that is strictly in the cable-television business, potentially making it easier for AOL Time Warner to use that stock to try to acquire additional cable providers.
AOL Time Warner would have preferred to give AT&T; and Comcast only shares in the new Time Warner Cable entity, rather than also giving up cash and shares in the parent company.
But Parsons felt pressure to make a deal now. Shares of AOL Time Warner have lost about two-thirds of their value since last fall, when America Online started to stumble.
Since then, the company has shaken up its management suite and has come under scrutiny from securities regulators for its accounting practices. With the deal, Parsons can claim that he is resolving a major uncertainty for his company and, more important, helping set America Online on the path to recovery.
With the Time Warner Entertainment deal, Parsons also can claim that he has firmly put his stamp on AOL Time Warner. In recent months Parsons has also installed well-regarded senior managers and made new credit arrangements for the company.
The companies declined to comment yesterday.
AT&T; and Comcast have agreed that after Comcast completes its pending acquisition of AT&T;'s cable unit, the combined company will offer America Online cable-modem service to about a third of its subscribers, or about 7.5 million homes.
The combined AT&T; Comcast will initially offer the high-speed America Online service in the Boston, Seattle, Indianapolis and Nashville, Tenn., areas.
It was unclear yesterday how AOL Time Warner and the combined AT&T; Comcast would split the revenue from the new high-speed service.
But the companies intend to work toward extending the AOL service to all of AT&T; Comcast's roughly 21 million customers within a few years, according to the people briefed on the details.
The initial cable-modem deal would be for three years. Until now, America Online has had trouble persuading other major cable providers to package its service as part of the cable-company's high-speed cable modem service.
Generally, customers not served by AOL Time Warner's own cable systems who want high-speed America Online service have had to set up their own cable-modem systems or subscribe to the digital subscriber line, or DSL, service offered by telephone companies.
Even now, the deal is not complete. People who have been briefed on the pact say that while the parties plan to announce their agreement today, they do not expect to close the deal until sometime next year.