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AT&T Bats Down Comcast but Opens Door to Rivals

Ma Bell says it will entertain other offers.

Updated from 6:08 p.m. EDT

:

Sometimes in the world of business, "No" doesn't mean "No."

That looks like the case with

Comcast's

(CMCSK)

unsolicited 10-day-old offer to buy the

AT&T Broadband

cable unit of

AT&T

(T) - Get AT&T Inc. Report

.

At the market's close Wednesday, AT&T said in a statement that its board had unanimously rejected Comcast's $40 billion offer because it "did not reflect the full value of AT&T Broadband." AT&T said it was also concerned about corporate governance issues arising from Comcast's multitier voting structure. That structure enables the family of Comcast Chairman Ralph Roberts and his son, Comcast President Brian Roberts, to control Comcast, though the cable company's investors have rarely objected to the Roberts' stewardship.

That was the bad news for Comcast. On the bright side, however, Comcast was successful with one of the goals of its July 8 offer: to derail AT&T's planned issuance of a tracking stock covering the cable operations. While rejecting the Comcast offer, AT&T's board also said it has decided to delay finalizing proxy materials for its current restructuring plans and sending those proxies to shareholders.

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The board says AT&T's management will explore "financial and strategic alternatives relating to AT&T Broadband," which may include its original tracking stock plan.

That exploration holds the door open for Comcast or other buyers to make sweeter offers for all or part of AT&T's cable business, which is the largest operator of cable systems in the U.S.

Elbow Room
The nation's biggest cable operators

Sources: National Cable & Telecommunications Association, Nielsen Media Research, Paul Kagan Associates

So what happens next? Comcast comes back with a higher offer, says one buy-side analyst whose firm owns Comcast, but not AT&T. Brian Roberts "wants it bad," says the analyst, who spoke on condition of anonymity. "Generally, you're not going to start out with your best offer." For its part, AT&T is doing "exactly what they should do," says the analyst. "They're asking for a sweetened bid."

As for other buyers who might come in, it's hard to think of companies other than Comcast in the cable industry who would have the financial resources to purchase all of AT&T, the analyst said.

AOL Time Warner

(AOL)

might be interested, said the buy-sider, though the company give the impression it is more focused on building its content business rather than adding to its distribution assets. It's also possible that a consortium of buyers might come together to purchase AT&T Broadband, then divvy up its systems among themselves -- a strategy on which Comcast and other cable systems cooperated more than once in the late 1980s.

In a statement issued Wednesday night, Brian Roberts said he was happy that AT&T had delayed its tracking stock plan. "However, we disagree with the AT&T Board's characterization of our offer as inadequate," said Roberts, citing the $14 billion by which AT&T shareholders have bid up Ma Bell's market cap following the announcement of Comcast's offer. "As evidenced by the reaction of their shareholders, the Board's concern about our corporate governance has no foundation," Roberts said. "We think our stock's historical performance speaks for itself.''

AT&T's shares closed at $20.94 on Wednesday, up 13 cents. Comcast's widely traded Class A Special shares fell 6 cents to close at $37.49. In after-hours trading, Comcast's shares held steady on

Island

. AT&T changed hands at $20.75 after hours on

Instinet

.