Ever so politely,
is taking it to the streets.
The nation's third-largest cable television operator spent Monday morning in a genteel effort to goad
into a deal for its cable television subsidiary. Though AT&T seems reluctant to part with
, analysts and investors like the potential pairing of AT&T Broadband's valuable assets with Comcast's strong, profit-focused management team. Wall Street showed it believes the offer has heft, bidding up the shares of target AT&T and pushing would-be acquirer Comcast lower.
Speaking to investors in New York, Comcast President Brian Roberts hammered home the point that Comcast will do a lot more with AT&T Broadband than AT&T will. Comcast rolled out detailed forecasts for cost-cutting and revenue growth, and pointed to its own record of boosting profits at acquired properties. AT&T, which built the broadband unit from the assets of the former
, intends to issue a cable tracking stock and eventually spin AT&T Broadband off as a separate company. But that may not be enough to satisfy restive shareholders.
Ball's In Your Court
The proposed transaction is "a pretty good offer," says Mark Greenberg, portfolio manager of the
Invesco Leisure fund. Now, "AT&T has to convince investors that AT&T can raise margins and get the valuation higher" than Comcast is proposing. He adds, "They need to explain it in concrete terms."
AT&T shares were trading at $18.74 Monday afternoon, up 12% from the Friday close adjusted for the AT&T Wireless spinoff. Comcast's shares traded at $39, down nearly 8%.
Comcast's Roberts shied away from setting a deadline for AT&T's response. "One day at a time," he said. He also declined to specify what, if anything, had gone wrong at AT&T Broadband. "I'm not going to go there and say why it is the way it is," he said. "We want to make a deal here."
But if Roberts wasn't willing to cast aspersions on AT&T's cable business, plenty of investors on hand at the analysts' conference Monday were.
"What has AT&T ever done well?" asked Joan Lappin of
Gramercy Capital Management
, which doesn't hold either AT&T or Comcast, according to
. "Why would we expect them to be any different with cable?" Since the beginning of 1998, the year AT&T got into the cable business under the stewardship of C. Michael Armstrong, Comcast shares have jumped 186% against a 48% decline at AT&T.
Bread and Butter
Comcast's courteous argument Monday was that it's just better at the bread-and-butter business of running a cable system. Some bullet points on what Comcast says it can do with AT&T Broadband:
Cut marketing costs in half.
Reduce corporate overhead from $500 million to $50 million annually.
Cut capital expenditures by 5%-10%.
Increase monthly pay-per-view sales by $7 per subscriber.
To further argue that the company knows what it's getting into, Comcast showed a slide indicating the performance of its cable systems comprising 765,000 subscribers that it acquired in swaps with AT&T Broadband by the first of the year. Comcast says the operating cash flow margin for the systems will grow 32% from 2000 to 2001, from $113 million to $149 million. The operating cash flow margin will improve, says Comcast, from 26% to 32%. The company said it had been able to improve revenue in the systems without raising rates more than 3% by selling services better and keeping costs under control.
AT&T, for its part, reiterated on Monday that it has no plans to sell the broadband business to Comcast or anyone else. AT&T has said in the past that its low margins are a result, in part, of its investment in digital services -- features such as enhanced channel capacity and high-speed Internet access that all major cable operators are investing in right now in the hopes of building major new revenue streams. The 16% ebidta margin in the first quarter is just a low-water mark on the way to rising margins.
Yet Comcast countered in its presentation that it and other cable operators have been able to keep ebitda in the 40% range while making the same upgrades and integrating low-margin cable systems. One of its slides, for example, showed that Comcast's ebitda had doubled from 1996 to 2000 though cable margins had remained steadily high.
Despite Comcast's attempts at friendly persuasion, it's unclear how easy it will be for it to get the masses to pressure AT&T to do a deal. Though 42.9% of AT&T is in instutional hands, the stock, widely held by individual investors, doesn't have any shareholders who own more than 5% of the stock, and its proxy statement doesn't list any with more than 2% of shares. Directors and officers hold a total of 2.3% of shares, not enough to force anything through by themselves.