AT&T rejects Comcast bid

AT&T’s board today unanimously rejected Comcast’s bid for its broadband unit but delayed mailing proxy materials to shareholders for its planned spin-off of the division, possibly indicating AT&T’s interest to seek further bids for its cable assets.

A letter from the board to Comcast officials states the $58 billion bid for its cable holdings “does not reflect the full value of AT&T Broadband” and expresses concern that AT&T shareholders would not receive enough control of the merged entity if the proposal was accepted.

While claiming that it remains “committed” to separating AT&T Broadband, the AT&T board decided to delay mailing proxy information to shareholders regarding the creation of a tracking stock for the unit—an action that Comcast officials interpreted as a positive sign.

“We are pleased that AT&T's board of directors has responded to the market’s overwhelming endorsement of our proposal by delaying its broadband tracking stock plan,” said Comcast President Brian Roberts in a prepared statement. “However, we disagree with the AT&T Board's characterization of our offer as inadequate. Since our announcement, AT&T shareholders have responded to our proposal by adding over $14 billion in market valuation to AT&T. As evidenced by the reaction of their shareholders, the board’s concern about our corporate governance has no foundation. We think our stock’s historical performance speaks for itself.”

The rejection was not a surprise, as AT&T Chairman C. Michael Armstrong said last week that others had expressed interest in the company’s cable division. Many analysts have said they expect AT&T to seek a better bid.

“I would think AT&T would want to get a lot closer to $70 billion than $58 billion,” said Drake Johnstone, first vice president at Davenport & Co.

Analysts have said such a bid would compensate AT&T for the missed opportunity at an IPO--through which the company planned to raise $7 billion--reflect AT&T’s investment in upgrading the network, and perhaps salve wounds created by the fact that AT&T’s new share in Comcast would have little effective voting power.

To hit the $70 billion mark, Comcast must increase its bid to from $12.60 per share to $16 per AT&T share--something it may be willing to do, because even a $19 per share cost would be accretive to the cable provider, according to Patrick Comack, a telecom analyst with Guzman & Co.

Indeed, Comcast’s Roberts indicated in his statement that he anticipates further negotiations with AT&T.

“We are surprised that AT&T’s Board has yet to ask us for any further information. To that end, we remain prepared to hold immediate discussions with AT&T regarding our proposal.”