Internal AT&T Publication, first distributed on 2/6/02:
Realization of the broadband vision
The merger of AT&T Broadband and Comcast Corp. creates a communications
powerhouse and accelerates the potential of cable telephony.
By Paul La Plante
If you were to develop the first television program to be carried by the new
AT&T Comcast Corp. -- a program that chronicled the events leading up to the
merger of AT&T Broadband and Comcast Corp. announced in December -- what kind of
program would it be?
Judging from the outside-looking-in view seen through much of the media coverage
in the second half of 2001, you might guess it would be along the lines of a
"reality program" where speculation and intrigue abound.
But the behind-the-scenes activities and single-minded focus of AT&T management
would be much more accurately depicted by a television concept that predates
even the invention of cable TV: the repeat. That's because from start to finish
-- from AT&T's initial restructuring announcement in October 2000, to evaluation
of Comcast's overture last summer, to the culmination of the merger agreement in
December -- management returned time and time again to one goal for the AT&T
Broadband business unit: maximize the creation of shareholder value.
AT&T and Comcast shareholders will have their say on the proposed $72 billion
merger later this year when votes are taken, and the merger is subject to
regulatory review as well. But at this point, the management teams of AT&T and
Comcast are confident the deal not only meets this goal of creating shareholder
value, but also is a win for customers because it's positioned to bring more
services to more people more quickly.
Separately, the organizations are each forces to be reckoned with in their own
right:
o AT&T Broadband is the United States' largest broadband services
company, providing television entertainment services to more than 13.5
million customers across the nation as of the end of the third quarter.
The company also provides advanced services, such as digital cable,
high-speed cable Internet services and competitive local phone service.
o Meanwhile, Comcast is the country's third-largest provider of cable
services, with about 8.5 million customers as of the end of the third
quarter, and is expanding its cable operations to deliver digital
services and high-speed Internet service.
Together, the strategic combination -- expected to be completed by the end of
the year -- will create one of the premiere communications, media and
entertainment companies in the world.
Bringing greater choice
For starters, it would be the United States' premiere broadband services
network, serving about 22 million subscribers. Further, the merger is intended
to put on the fast-track a vision that thousands of AT&T people already were
working toward -- bringing greater choice in affordable broadband video, voice
and data services to even more American homes.
AT&T Comcast Corp. will begin life with a clear mandate to aggressively expand
the availability of those services throughout its service areas, including plans
to bring a choice in local telephone service to more than 38 million homes
passed by its cable systems. The new company's footprint includes 17 of the 20
largest metropolitan areas in the country, and its scale will allow it to
accelerate the development and deployment of new broadband applications, such as
video on demand and interactive television.
So just how did the proposed AT&T Comcast Corp. come about? And why was Comcast
chosen for the merger with AT&T Broadband when it was no secret others were
vying for the opportunity to link up with us? The answers rest, again, in the
focus on doing what created the most shareholder value -- both today and in the
future. (See recap of key events on page 7.)
Closer look at the offer
Though the acceptance of Comcast's offer may appear to have a
"back-where-we-began-in-July" feel to it given the company's initial bid, there
were significant differences that made the new offer the right one.
First, concerns about the voting structure of a combined company were addressed.
The proposal accepted by AT&T calls for AT&T shareholders to own a 56 percent
economic stake and about a 66 percent voting interest in the new company. And
the Roberts family, which owns Comcast Class B shares, will control one third of
the new company's outstanding voting interest.
Second, the economics of the latest offer mean that AT&T shareholders will
benefit from improved financials over the initial bid.
Third, Comcast management fully supports AT&T Broadband's cable telephony
strategy. After extensive review of AT&T Broadband's industry-leading cable
telephony expertise and infrastructure during the evaluation process, Comcast
management agreed with AT&T that the merged firm will be well-positioned to
accelerate and improve the delivery of telephony services in Comcast's service
areas, and that telephony has the potential to be a significant driver for value
creation for the merged firm.
Restructuring to proceed
AT&T intends to proceed with other aspects of its original restructuring plan,
including the creation of a tracking stock for AT&T Consumer, which is expected
to be distributed to AT&T shareholders this summer following shareholder
approval. And following the separation of AT&T Broadband and the establishment
of the AT&T Consumer tracking stock, the familiar "T" stock symbol is intended
to reflect the financial results of AT&T Business, which will retain ownership
of the "AT&T" brand.
So with an unanticipated but welcome change in how the independence of AT&T
Broadband will come about, the AT&T restructuring plan of October 2000 remains:
create new businesses, with each to become a publicly held business that trades
as a common stock or a tracking stock.
Terms of the merger will accelerate by a few months the departure of AT&T
Chairman and CEO Mike Armstrong. Armstrong will serve as chairman of the new
AT&T Comcast Corp. when the merger closes, instead of retiring from AT&T in May
2003 as he had planned. Until the deal closes, Armstrong will remain Chairman
and CEO of AT&T.
"AT&T Broadband and Comcast can accomplish more together than we could alone,"
Armstrong says. "Our shareholders and our employees will both benefit from the
industry-leading growth we will achieve."
Sidebar: A recap of key events
Oct. 25, 2000
AT&T announces plans to create new businesses, each operating under the "AT&T"
brand, committed to uniform standards of quality and continuing to bundle each
other's services through inter-company agreements. Under the plan, each of the
major units -- AT&T Business, AT&T Consumer, AT&T Broadband and AT&T Wireless --
was to become a publicly held business, trading as a common stock or a tracking
stock. The plan's goal was to provide the greatest long-term value for
shareholders.
July 8, 2001
Comcast makes an unsolicited bid for the AT&T Broadband unit.
July 18, 2001
After careful review, and based in part on the advice and analysis of its
financial advisers, the AT&T Board of Directors votes to reject the Comcast
proposal, feeling it does not reflect the full value of AT&T Broadband. The
Board also is concerned about the voting rights of AT&T shareholders under the
proposal. The Board instructs AT&T management to explore financial and strategic
alternatives to find one that provides the greatest long-term value for
shareholders.
Dec. 9, 2001
Following submissions of bids from Comast and other interested parties, the AT&T
Board meets to consider the various proposals. The meeting concludes with the
Board instructing management to continue discussions with all interested
parties, saying it would evaluate the potential of all proposals to create
long-term shareholder value.
Dec. 19, 2001
The AT&T Board gives unanimous approval and full support to
a merger of AT&T Broadband and Comcast, culminating a rigorous process to assess
strategic and financial alternatives for the Broadband unit that would create
long-term shareholder value.
Terms of the agreement
Subject to the terms of the definitive agreement:
o AT&T will spin off AT&T Broadband and simultaneously merge it with Comcast,
forming a new company to be called AT&T Comcast Corp.
o AT&T shareholders will receive approximately 0.34 shares of AT&T Comcast Corp.
for each share of AT&T they own (subject to adjustment based on the number of
AT&T shares at closing).
o AT&T shareowners will own a 56 percent economic stake and about a 66 percent
voting interest in the new company. The Roberts family, which owns Comcast Class
B shares, will control one third of the new company's outstanding voting
interest.
o AT&T Comcast Corp.'s assets will consist of both companies' cable TV systems,
as well as AT&T's interests in cable television joint ventures and its 25.5
percent interest in Time Warner Entertainment, and Comcast's interests in QVC,
E! Entertainment, The Golf Channel and other entertainment businesses.
o The new company will assume nearly $20 billion in debt and other liabilities
from AT&T and its subsidiaries, as well as $5 billion of AT&T subsidiary trust
convertible preferred securities held by Microsoft Corp., making the aggregate
value of the transaction to AT&T shareholders worth $72 billion, based on the
closing price of Comcast Class K stock on Dec. 19.
o The approximate .34 shares of AT&T Comcast that AT&T shareowners
would receive represented a value equivalent to $13.07 per AT&T share based on
Comcast's closing share price on Dec. 19, 2001. AT&T shareholders also will
retain complete ownership of AT&T's traditional communications businesses.
Additional information and where to find it
In connection with the proposed transactions, AT&T and Comcast will file a joint
proxy statement/prospectus with the Securities and Exchange Commission (SEC).
Investors and security holders are urged to carefully read the joint proxy
statement/prospectus regarding the proposed transactions when it becomes
available because it will contain important information. Investors and security
holders may obtain a free copy of the joint proxy statement/prospectus (when it
is available) and other documents containing information about AT&T and Comcast,
without charge, at the SEC's Web site (http://www.sec.gov). Free copies of
AT&T's filings may be obtained by directing a request to AT&T Corp., 295 N.
Maple Ave., Basking Ridge, N.J. 07920, Attention: Investor Relations. Free
copies of Comcast's filings may be obtained by directing a request to Comcast
Corp., 1500 Market Street, Philadelphia, Pa., 19102-2148, Attention: General
Counsel.
Participants in solicitation
AT&T, Comcast and their respective directors, executive officers and other
members of their management and employees may be soliciting proxies from their
respective stockholders in connection with the proposed merger. Information
concerning AT&T's participants in the solicitation is set forth in AT&T's Annual
Report for the year ended Dec. 31, 2000, filed with the SEC on April 2, 2001,
and amended on April 17, 2001, and the proxy statement for its special meeting
of stockholders, filed with the SEC on July 3, 2001. Information concerning
Comcast's participants in the solicitation is set forth in a filing made by
Comcast with the SEC pursuant to Rule 14a-12 on July 9, 2001.
[Chart]
Subscribers of leading broadband providers
Millions of Subscribers
22.1*
X
16.7
(6.4/10.3)
X
11.2
X
7.0
X
6.3
X
5.8
X
3.0
X
AT&T/ EchoStar/ Time Charter Cox Adelphia Cablevision
Comcast DirectTV Warner
(pending) Cable
*Represents subscribers for owned and operated systems only. AT&T also has
interests in other cable systems.
Source: Wall Street equity research 2001 estimates.
[Chart]
Telephony footprint compared to RBOCs...
Homes Homes
Passed (M) Connected (M)
AT&T Comcast Corp. 38 1.0
SBC 36 36
Verizon 33 33
BellSouth 15 15
Qwest 10 10
Source: Wall Street equity estimate research and company reports as of 12/20/01.
[Chart]
[Map of United States and presence of each of SBC, Qwest, BellSouth, Verizon and
AT&T Comcast areas]
[Chart]
Leading providers of advanced services
Digital Cable Broadband Data Cable Telephony
------------- -------------- ---------------
Thousands Thousands Thousands
of of of
Subscribers Subscribers Subscribers
0 - 5,000 0 - 2,500 0 - 1,000
AT&T/ AT&T/ AT&T/
Comcast = 4,797 Comcast = 2,180 Comcast = 924*
Time Time
Warner Warner
Cable = 2,861 Cable = 1,661
Charter = 1,951 Cox = 779 Cox = 399
Adelphia = 1,682 Charter = 508 Cablevision = 12
Cox = 1,228 Cablevision = 423
Adelphia = 315
*Represents only AT&T subscribers; Comcast currently has no cable telephony
customers.
Source: Data as of Company reports on 9/30/01.
[Chart]
AT&T debt reduction
Year-end 2000 net debt:*
$56.2 billion
NTT DoCoMo investment
in strategic wireless alliance
$9.8 billion
Sale of
non-core
cable assets
$5.9 billion
AT&T Wireless:
Debt-equity swap ($1.6 billion)
Residual interest ($1.3 billion)
Split ($0.7 billion)
Total $3.6 billion
Sale/monetization of Cablevision
stock and sale of Rainbow Media
Group Stock
$1.9 billion
Sale of Japan Telecom stake
$1.3 billion
AT&T Comcast Corp.
(Debt to be assumed)
$17.3 billion**
* Includes debt from discontinued operations; net of cash and monetizations.
** Net AT&T Broadband debt as of 9/30/01.