AT&T Corp. Stands Firm on $44 Billion Acquisition of Tele-Communications Inc.

Strategic Insights -

AT&T Corp. remains committed to its $44 billion purchase of Tele-Communications Inc., despite initial investor concerns and predictions of regulatory hurdles. Chairman and CEO C. Michael Armstrong has reassured investors that the deal will not be renegotiated, citing the significant growth opportunities that the acquisition presents. Analysts believe that investors will eventually come to appreciate the value of the deal, and AT&T's shares have already shown signs of recovery. Meanwhile, the acquisition has been praised by senators as a means to break the logjam in local telephone competition, which has been hindered by court battles and other obstacles.

Key Takeaways:

  • AT&T Corp. Chairman and CEO C. Michael Armstrong has asserted that the company will not renegotiate its $44 billion purchase of Tele-Communications Inc., stating that the deal is "signed, sealed, and delivered."
  • Analysts predict that investors will eventually view the transaction favorably, with some attributing this to a lack of understanding about the deal's significance to AT&T's future growth.
  • Senators have praised the acquisition as a means to break the logjam in local telephone competition, which has been hindered by court battles and other obstacles.
  • AT&T has budgeted $1.8 billion for TCI to upgrade its network to digital, with 60% of the work expected to be complete by the end of 1999 and 90% ready by the end of 2000.
  • Once the network is upgraded, AT&T plans to add the capability for telephone service at a cost of about $300 to $500 per household, to be tested in pilot projects next year and deployed in 2000.
  • AT&T's shares have dropped about 14% since news of the purchase spread, but have rebounded with a 1.375% increase in trading on October 19.
  • Tele-Communications Inc. (TCI)'s shares have also shown signs of recovery, rising 1.62% in trading on October 19.

Statistics:

  • The value of the AT&T Corp.-Tele-Communications Inc. deal: $44 billion
  • The drop in AT&T's shares since news of the purchase spread: 14%
  • The recovery of AT&T's shares on October 19: 1.375%
  • The rise in Tele-Communications Inc. (TCI) shares on October 19: 1.62%
  • The budget for TCI's network upgrade: $1.8 billion
  • The expected completion percentage of the network upgrade by the end of 1999: 60%
  • The expected completion percentage of the network upgrade by the end of 2000: 90%

Sources:

  • C. Michael Armstrong, Chairman and CEO, AT&T Corp.
  • Jeffrey Kagan, President, Kagan Telecom Associates
  • Kim Wallace, Telecommunications Analyst, Lehman Brothers
  • Sen. Herb Kohl, D-Wis., Judiciary Committee's Antitrust, Business Rights and Competition Subcommittee