AT&T Corp.'s board Wednesday unanimously rejected Comcast Corp.'s unsolicited $44.5-billion bid for its cable-television unit but also postponed the division's planned spinoff, in what analysts and investors interpreted as a victory for Comcast.
In a letter to Ralph and Brian Roberts, the father and son team that controls Comcast, C. Michael Armstrong, AT&T's chairman, said the board had rejected Comcast's offer after it "determined that your proposal does not reflect the full value of AT&T Broadband" _ AT&T's name for its cable unit.
However, AT&T said that the board had delayed the cable spinoff so the company could "explore financial and strategic alternatives relating to AT&T Broadband." Those words are essentially Wall Street code language for "explore a sale or partnership with another company," although AT&T said that the spinoff plan was still among the possible options.
"AT&T is in a bind," said Adrian Davies, senior analyst at Federated Investors Management Corp., a large shareholder of AT&T. "They'll try to play a waiting game, but they have to look seriously at selling."
Disappointed by AT&T's dismal financial performance since entering the cable business two years ago, several large AT&T shareholders have voiced their support of the Comcast bid publicly and privately. In a show of support, investors have bid up AT&T shares by 21 percent since Comcast's proposal 10 days ago. Comcast wants to merge its operations with AT&T Broadband, the nation's largest cable operator, which is three times its size.
In its statement Wednesday, Comcast cited the stock increase as evidence of investor enthusiasm for the Philadelphia-based cable company's offer.
"Since our announcement, AT&T shareholders have responded to our proposal by adding over $14-billion in market valuation to AT&T," Brian Roberts, president of Comcast, said in the statement. ". . . We remain prepared to hold immediate discussions with AT&T regarding our proposal."
As recently as last week, Armstrong told investment bankers to proceed with plans for the spinoff of the cable unit, the Los Angeles Times reported. AT&T has maintained until now that the cable unit was not for sale.
The merger of AT&T Broadband with Comcast would create the nation's largest cable operator, reaching one in every four American households. Such reach would make Comcast more powerful in the pay television business than either AOL Time Warner, the second-ranked cable operator with 12-million subscribers, or DirecTV, the satellite leader that serves 10-million customers.
As a result, speculation has swept through the cable industry that other bidders would emerge.
"No one wants Comcast to have 22-million subscribers, but no one is in a position to stop them either," Davies said.
Indeed, virtually every major cable company has hired an adviser to consider whether to bid for AT&T Broadband, which has 13.5-million subscribers in some of the choicest markets, including Los Angeles, Chicago and Boston.
It appears that other major media companies, including AOL Time Warner, have at least considered making a deal with AT&T's cable operation. For AT&T's board, however, a deal with a company other than Comcast could hold attractions other than money.
While the Roberts family now owns only about 2 percent of Comcast, the nation's No. 3 cable company, the family controls roughly 86 percent of the company's vote. Under the July 8 proposal, the family would own no more than 1 percent of the combined company but would control around 42 percent of the vote, which could be considered effective control.
Shares of AT&T ended trading at $20.94, up 13 cents. Class A shares of Comcast closed at $36.92, down 7 cents.
_ Information from the New York Times was used in this report.