Malone not mum on AOL bid for AT&T

Sep 10, 2001  •  Post A Comment

Liberty Media Corp. Chairman John Malone told the company’s investors Friday that AOL Time Warner privately has offered to merge its cable systems with those of AT&T Broadband.
Although AOL Time Warner has broached AT&T about such a plan in the past, Mr. Malone said this was a firm “undisclosed offer,” although he refrained from calling it an actual bid for the broadband unit. AT&T rejected Comcast Corp.’s $58 billion stock and cash bid in July.
AOL Time Warner, which declined comment, is said to be seeking operational control of what would be a newly created, publicly traded cable entity serving 25 million subscribers in which it would have a 40 percent stake, Mr. Malone said. AOL Time Warner would likely face stiff regulatory scrutiny and more pressure on its stock, which declined another 8 percent Friday, closing at $32 a share.
However, Mr. Malone said he thought there was a 75 percent chance that a merger of cable systems owned by AOL and AT&T would be approved by government regulators.
“AT&T has received two pretty good offers; one from Comcast and one from AOL that has not been disclosed,” Mr. Malone told Electronic Media in comments prior to his investors presentation at Liberty’s annual meeting Friday. “This will come to a head before AT&T’s regular board meeting in a few weeks. We win no matter how it turns out.”
Having resigned from the AT&T board last month before Liberty was spun off from AT&T, Mr. Malone said he continues to steadily sell off his stock in the communications giant. He said that if Comcast does not force the issue by launching a proxy fight, or if AT&T’s major institutional investors don’t force a sale of the broadband unit, the matter could conceivably drag out until AT&T’s annual shareholders meeting next May.
Mr. Malone said he believes AT&T Chairman Michael Armstrong prefers to keep AT&T Broadband independent and is negotiating with companies such as The Walt Disney Co. to become strategic equity partners in the unit.
Mr. Malone said that, if asked, Liberty Media would consider taking a strategic equity stake in AT&T Broadband. “Under the right circumstances, we would look carefully at being a strategic investor in AT&T,” Mr. Malone said.
If AOL Time Warner does combine with AT&T Broadband, Mr. Malone said there would be widespread concern that AOL Time Warner would use the massive cable platform mostly for its own content and services.
Mr. Malone said Liberty would be a beneficiary of any AT&T deal. He said Liberty’s significant stakes in Comcast’s QVC and E! Entertainment could eventually be converted to Comcast stock, which would make Liberty the company’s single largest shareholder. Comcast winning AT&T Broadband would only further enhance those stakes, he said.
As the single largest shareholder of AOL Time Warner, with a 4 percent stake, Liberty also stands to gain from an AOL-AT&T cable merger. He said Liberty’s content contracts protect their continued distribution despite change of ownership.
“If they [AOL Time Warner] want carriage on our 63 million subscribers in Germany, then they damn well better give us distribution in the 24 million subscriber homes they are putting together here,” he said. “I don’t see any outcome here that we wouldn’t be happy with.”
Mr. Malone’s confirmation of a long-suspected AOL Time Warner offer caught all of the related parties off guard, including Comcast Corp. whose rejected bid was considered the only real buyout offer on the table.
Some analysts and investors said Mr. Malone’s comments about an AOL Time Warner offer for AT&T Broadband appeared to be positioning to get a deal done.
Mr. Malone now is showing his power abroad, where Liberty spent more than $5 billion to become the largest cable operator in Germany. Mr. Malone said he will meet this week with Leo Kirch and other key European program providers about entering strategic partnerships with Liberty’s new German cable investments, including Deutsche Telekom cable and UPC. Mr. Malone said Liberty could take a stake in financially strapped Kirch.
Liberty officials last week said they are planning to restructure UPC. Mr. Malone said he will soon take to his shareholders a proposal to create a Liberty International tracking stock that would allow the company’s interests abroad to trade on and create their own value. Such a stock could be used as deal equity and to create new foreign partnerships, he said.