AT&T, the largest US telecommunications group, is to acquire Telecommunications Inc (TCI), the country's biggest cable television company, it announced yesterday.
The deal, worth around $45 billion (£32 billion) will create the first company able to sell communications and entertainment services, ranging from cable television and internet access to long-distance telephone service, to millions of Americans.
It is the latest in a series of takeovers in the US communications industry, prompted by rapid technological change and deregulation set in train two years ago. AT&T has already acquired Teleport for $11.3 billion this year and recently made an informal overture to buy America Online for more than $30 billion, an offer that was rebuffed.
The deal valued TCI's stock at around $29 billion yesterday afternoon, following a 7 per cent slide in AT&T's shares, which are being used as the currency for the deal. That represents a premium of 22 per cent over TCI's share price before the move was announced. AT&T will also assume $11 billion of TCI's debt and pay $5.5 billion for some of TCI's other interests, lifting the total value of the deal to $45.5 billion.
The acquisition would give AT&T direct access through TCI's cables to 10.5 million homes in the US, and to another 10 million via affiliated cable companies. That network would be used to deliver AT&T's long-distance telephone services, the company said. It would also enable it to take its first steps into the residential market for local calls.
Mr Michael Armstrong, AT&T's chairman since late last year, has abandoned the group's strategy of relying on the Baby Bells' networks.
He said the company wanted its own infrastructure to gain control over the quality of its services, avoid paying fees to other carriers and keep control of all its costs.
TCI's networks and those of its affiliates are capable of reaching 33 million homes a third of the total the two companies said. AT&T plans to reach the other two-thirds by franchising its service to other carriers or through partnerships with other cable television companies.
Some industry experts warned, however, that adapting TCI's cable television systems to carry telephone calls would involve substantial investment and take years.
Antitrust experts said the acquisition was unlikely to cause concern among regulators. Offering telephone services through a cable television network would give most telephone users their first alternative to the regional telephone companies.
AT&T's shares slipped $4 yesterday morning in New York to $60 on concerns about the price it was paying. TCI's A shares rose $3 to $41, while its B shares climbed $7 to $45.
