Asserting that he can run AT&T's cable systems better than AT&T can, Comcast President Brian Robert's surprise bid seeks to coax AT&T's shareholders into pressuring the company to sell it's cable operation.
Roberts publicly announced a bid for most of the assets of AT&T Broadband, offering $58 billion in stock and assumed debt, or about $4,000 per subscriber. Deals are usually a courtship, with the seller quietly wooed behind the scenes. But Roberts felt he wasn't getting anywhere in private approaches to AT&T and decided to go public. Since AT&T is planning to eventually separate the cable systems from the rest of company, Roberts called his offer an "acceleration" of the process. Combining the systems with Comcast would be " a significantly better outcome, I believe, for the AT&T shareholders than they're currently doing."
AT&T simply responded that it has " no current plans to sell our broadband business," and would evaluate Comcast's offer.
In a presentation to analysts Monday, Comcast executives asserted that they can squeeze vastly more money out of AT&T's systems. AT&T Broadband stunned Wall Street and industry executives during the first quarter by posting low, low operating margins of just 16%. Other MSOs generally run in 40-50% cash flow margins.
Comcast Cable President Steve Burke pointed to a series of system acquisitions - including a package picked up last year from AT&T. " What we've found is there's an ability to improve just about every line of the P&L," Burke said. For example, he said AT&T's marketing - 5-6% of revenues - could be cut in half; the division overhead could be slashed from $500 million anually to $50 million; that a $500 million loss in cable telephone operations could be erased within two years; that the combined operations' other expenses, such as programming, could be trimmed another $350 million to $500 million.
One AT&T supporter countered that Comcast was proposing "milking the systems, not building them. AT&T could do that, too, if they didn't want to build a telephone business."
AT&T's likely responses will include soliciting possible counteroffers and to convince shareholders that improvements are coming to AT&T Broadband and ask why should they share the upside with Comcast shareholders when they can take it all for themselves. - John Higgins
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