Comcast Corp said Monday that it has agreed to acquire MediaOne Group Inc in a blockbuster $60bn deal that creates a cable television giant with a market capitalization of nearly $97bn. The merger, between the fourth- and third-largest US cable companies, respectively, gives the combined entity roughly 11 million subscribers and systems that pass 18 million homes – trailing only Time Warner Inc with 13 million subscribers and AT&T Corp’s recently acquired Tele-Communications Inc unit with 12 million.
From a revenue standpoint, the two together would have generated over $8bn in 1998. The cable holdings that each brings to the table are said to be geographically complementary – Comcast is based in Philadelphia and MediaOne has its headquarters in Englewood, Colorado – and thus are expected to provide the opportunity for significant revenue enhancement and operating synergies going forward. The combined balance sheet will also show little net debt, the companies say. On the management front, Comcast chairman Ralph Roberts and Comcast president Brian Roberts will man the same posts at the combined company. MediaOne chairman and CEO Chuck Lillis will join the board as vice chairman, along with three additional MediaOne designees, bringing the total number of directors to 14.
The agreement calls for each MediaOne shareholder to receive 1.1 shares of Comcast Class A special common stock for each MediaOne share, or $80.16 per share based on Comcast’s Friday closing price, a premium of about 32% over MediaOne’s Friday close of $60.75. The stock swap part of the deal is worth an estimated $48.65bn, with the remainder of the $60m price tag coming through the assumption of debt and other considerations which have yet to be fully disclosed. After the deal is completed, MediaOne shareholders will own roughly 64% of the combined company.
The merger will be accounted for as a purchase by Comcast and will be tax-free to MediaOne shareholders. The boards of both companies have already given their blessings to the transaction but, allowing time to secure shareholder and regulatory approval, the deal isn’t expected to close until about year-end. While the agreement in place prohibits MediaOne from soliciting competing proposals, the company has 45 days to accept a better offer. In that event, however, it would have to pay a $1.5bn fee to Comcast. Salomon Smith Barney acted as a financial advisor to Comcast, while Lehman Brothers represented MediaOne.
The two say the new company will have the size and scope to lead the evolving broadband environment, in addition to holding global telecommunications, programming and internet interests. Comcast has principal ownership of the QVC shopping network, Comcast- Spectacor (which owns the Philadelphia 76ers basketball team and the Philadelphia Flyers hockey team) and a controlling interest in E! Entertainment Television and other programming investments. MediaOne, meanwhile, deals primarily in cable and telecommunications and has interests in some wireless businesses outside the US.
The deal could also lay the groundwork for future consolidation in the cable internet arena, as Comcast is an investor and partner in TCI-backed At Home Inc, while MediaOne has a substantial minority stake in the rival Road Runner venture, along with Time Warner, Microsoft Corp and Compaq Computer Corp. Microsoft itself paid $1bn for an 11.5% stake in Comcast in June of 1997 and a year later handed over $212.5m for a 10% share of Road Runner.