NEW YORK – Five months after being rejected in its bid to buy AT&T's cable division, Comcast Corp. convinced AT&T's board to approve a $52 billion deal to create a cable behemoth.
The merger is the largest announced in 2001 and would create a combined company with 22.3 million cable subscribers - much bigger than AOL's Time Warner Cable, which has 12.7 million subscribers.
The deal announced Wednesday night ended a bidding contest for AT&T Broadband that started five months ago when No. 3 cable operator Comcast mounted a $41 billion hostile bid for AT&T's cable unit. Offers from bidders AOL Time Warner and Cox Communications were rejected by the AT&T board.
Michael Armstrong, AT&T's chairman and chief executive, will serve as chairman of the new company - to be named AT&T Comcast Corp. - instead of retiring from AT&T in 2003 as planned. Brian Roberts, Comcast's president, will be the combined company's chief executive.
New York-based AT&T will spin off its cable division and simultaneously merge it with Philadelphia-based Comcast.
The deal also includes AT&T's 25 percent stake in Time Warner Entertainment and the assumption of $20 billion in AT&T debt. Microsoft Corp.'s $5 billion stake in AT&T Broadband will be converted into shares of the new company.
The new company will have cable subscribers in 17 of the country's 20 largest metropolitan areas and a presence in 41 states.
``This is a leap forward in realizing a vision that thousands of AT&T people have worked toward - bringing greater choice in affordable broadband video, voice and data services to even more American homes,'' Armstrong said.
Roberts said the deal will create a powerful company that should have the ability to accelerate local telephone service in new markets.
``I look forward to working with Mike and the AT&T Broadband team to achieve the full potential of this tremendous new company,'' he said.
Under the terms of the deal, AT&T shareholders will receive about .34 shares of AT&T Comcast Corp. for each share of AT&T they own, while Comcast shareholders will get one share of AT&T Comcast Corp. shares for each Comcast share.
AT&T's shareholders will own a 56 percent stake in the company and a 66 percent voting interest. Members of the Roberts family, who hold an 86 percent stake in Comcast, will control about a third of the new company's voting power.
AT&T and Comcast will each choose five board members and will jointly select two more members. The deal is expected to be completed at the end of 2002, and Armstrong will remain with AT&T until then. The combined company will have headquarters in Philadelphia while maintaining executive offices in New York. The deal is subject to regulatory approval.
In an interview, AT&T chief financial officer Chuck Noski said a transition team would determine the future AT&T Broadband's Denver-based headquarters, although he said the city would probably be ``an important element'' of the combined company.
The transition team will also decide how many employees the new company will have. AT&T Broadband has about 40,000 workers and Comcast has about 35,000.
In a statement, Cox said it was disappointed with the outcome, but declined to disclose details of its bid. AOL Time Warner spokesman Ed Adler declined to comment.
Noski also declined to offer details about the offers that were rejected, but said ``we can certainly assure our shareholders we took the best bid.''
The bidding process started after Comcast made its surprise offer the day before AT&T's spinoff of its wireless operation into an independent company, the first stage in a plan to break the communications conglomerate into five separate companies.
The biggest of those AT&T units is the sprawling cable operation that AT&T cobbled together with a $100 billion acquisition spree that began three years ago.
Analysts had said a decision to sell the broadband unit to AOL Time Warner would have faced heavy scrutiny by federal regulators and politicians wary about a combined company with about 26.4 million subscribers.
While regulators are sure to closely examine the AT&T-Comcast combination, observers have predicted the deal will likely overcome antitrust opposition in Washington, D.C.
``It'll be less controversial than a deal between AT&T and AOL,'' said analyst Richard Klugman of New York's Jefferies & Company, Inc. ``But that doesn't mean the regulators will give them a free ride.''
Noski said AT&T and Comcast officals will argue that the combination will allow the new company to compete with regional telephone companies around the country.
The Supreme Court on Dec. 3 refused to consider reinstating government restrictions on the number of subscribers that cable companies can have.
The decision rejected arguments by consumer groups who fear the possibility of a cable monopoly. The Bush administration asked justices to turn down the case because federal regulators are working on a new set of rules to address monopoly concerns.